UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

(Mark One)

[x] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES  EXCHANGE
    ACT OF 1934

                   For the fiscal year ended December 31, 2003

                                       OR

[ ] TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
    EXCHANGE ACT OF 1934

                       For the transition period from to

                         Commission file number 0-19140

                            CNL INCOME FUND VII, LTD.
             (Exact name of registrant as specified in its charter)

             Florida                                   59-2963871
     (State or other jurisdiction of      (I.R.S. Employer Identification No.)
     incorporation or organization)

                             450 South Orange Avenue
                             Orlando, Florida 32801
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (407) 540-2000

          Securities registered pursuant to Section 12 (b) of the Act:

          Title of each class:           Name of exchange on which registered:
               None                              Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

               Units of limited partnership interest ($1 per Unit)
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or such shorter  period that the registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days: Yes X No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [x]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2): Yes____ No X

         Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000,000 units of limited
partnership  interest  (the  "Units") on Form S-11 under the  Securities  Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $1 per Unit.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None

<PAGE>




                                     PART I


Item 1.  Business

         CNL Income Fund VII, Ltd. (the "Registrant" or the  "Partnership") is a
limited  partnership  which was  organized  pursuant to the laws of the State of
Florida on August 18, 1989. The general  partners of the  Partnership are Robert
A.  Bourne,  James  M.  Seneff,  Jr.  and  CNL  Realty  Corporation,  a  Florida
corporation  (the  "General  Partners").  Beginning  on January  30,  1990,  the
Partnership offered for sale up to $30,000,000 of limited partnership  interests
(the "Units")  (30,000,000 Units each at $1 per Unit) pursuant to a registration
statement  on Form S-11  under  the  Securities  Act of 1933,  as  amended.  The
offering  terminated  on August 1, 1990,  as of which date the maximum  offering
proceeds of  $30,000,000  had been received from  investors who were admitted to
the Partnership as limited partners (the "Limited Partners").

         The  Partnership  was organized to acquire both newly  constructed  and
existing  restaurant  properties,  as well as properties upon which  restaurants
were to be  constructed  (the  "Properties"),  which  are  leased  primarily  to
operators of national and regional fast-food and family-style  restaurant chains
(the "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units,  after  deduction  of  organizational  and  offering  expenses,   totaled
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties  owned by joint  ventures in which the  Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes.

         As of December 31, 2000, the Partnership  owned 20 Properties  directly
and held  interests in 15 Properties  through joint venture or tenancy in common
arrangements. During the year ended December 31, 2001, the Partnership purchased
an  additional  interest in TGIF  Pittsburgh  Joint Venture from CNL Income Fund
XVIII, Ltd., an affiliate of the General Partners.  During 2001, the Partnership
reinvested the net sales proceeds from the sale of three of its Properties  (two
in Jacksonville,  Florida and one in Lake City,  Florida) in a Property in Baton
Rouge,  Louisiana that was acquired from CNL Funding 2001-A, LP, an affiliate of
the General  Partners.  The Partnership  also used the proceeds from the sale of
the Property in  Friendswood,  Texas and the proceeds from the  promissory  note
related to the 1995 sale of the Property in Florence,  South  Carolina to invest
in CNL VII & XVII  Lincoln  Joint  Venture  with  an  affiliate  of the  General
Partners to purchase and hold one  restaurant  Property  and used the  remaining
proceeds  from the  promissory  note to invest  in CNL VII,  XV  Columbus  Joint
Venture  with an affiliate  of the General  Partners to  construct  and hold one
restaurant  Property.  In  addition,  during  2001,  the  Partnership  sold  its
Properties  in  Daytona  Beach,  Gainesville,   and  Saddlebrook,   Florida.  In
connection  with  the  sale of the  Property  in  Daytona  Beach,  Florida,  the
Partnership accepted a promissory note in the principal sum of $103,581.  During
2002, the Partnership collected the outstanding principal balance in full.

         During the year ended December 31, 2002, CNL Restaurant Investments II,
in which the  Partnership  owns an 18% interest,  sold its Property in Columbus,
Ohio and used the proceeds from the sale to acquire a Property in Dallas, Texas.
In addition,  during 2002,  CNL  Restaurant  Investments II sold its property in
Pontiac,  Michigan and the  Partnership  used a portion of the return of capital
from its pro-rata share of the net sales  proceeds  relating to this Property to
make an additional  contribution of approximately $63,900 to CNL Mansfield Joint
Venture.  In 2002, the Partnership also used a portion of the net sales proceeds
from the 2001 sale of its  properties in  Saddlebrook,  Gainesville  and Daytona
Beach,  Florida  to enter  into a joint  venture  arrangement,  Arlington  Joint
Venture,  with an  affiliate  of the General  Partners,  to hold one  restaurant
property.   Also  during  2002,  CNL  Mansfield  Joint  Venture,  in  which  the
Partnership  owns a 79%  interest,  sold its  Property in  Mansfield,  Texas and
reinvested the proceeds in a Property in Arlington, Texas.

         As of December 31, 2003, the Partnership  owned 18 Properties  directly
and held interests in 17 Properties  indirectly through joint venture or tenancy
in common arrangements.  The Properties are, in general,  leased on a triple-net
basis with the lessees  responsible  for all repairs and  maintenance,  property
taxes, insurance and utilities.

         The  Partnership  holds  its  Properties  until  the  General  Partners
determine that the sale or other  disposition of the Properties is  advantageous
in view of the Partnership's investment objectives.  In deciding whether to sell
Properties,  the General  Partners  consider  factors such as potential  capital
appreciation,  net cash flow and federal income taxes. Certain lessees also have
been granted  options to purchase  Properties,  generally at the Property's then
fair market value after a specified  portion of the lease term has elapsed.  The
Partnership  has no  obligation  to sell all or any portion of a Property at any
particular  time,  except as may be required  under  property  purchase  options
granted to certain lessees.

Leases

         Although there are variations in the specific terms of the leases,  the
following  is  a  summarized   description  of  the  general  structure  of  the
Partnership's  leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms  ranging  from six to 20 years (the  average  being 16 years),  and expire
between 2004 and 2022. Generally, the leases are on a triple-net basis, with the
lessee  responsible for all repairs and maintenance,  property taxes,  insurance
and  utilities.  The leases of the  Properties  provide for minimum  base annual
rental payments  (payable in monthly  installments)  ranging from  approximately
$30,000 to $259,900.  The majority of the leases  provide for  percentage  rent,
based on sales in excess of a specified amount. In addition,  some of the leases
provide that,  commencing in specified lease years  (generally  ranging from the
sixth to the eleventh lease year), the annual base rent required under the terms
of the lease will increase.

         Generally,  the  leases  of the  Properties  provide  for  two to  five
successive five-year renewal options subject to the same terms and conditions as
the initial lease.  Lessees of 26 of the  Partnership's  35 Properties also have
been granted  options to purchase  Properties at the Property's then fair market
value after a specified portion of the lease term has elapsed. Fair market value
will be determined through an appraisal by an independent  appraisal firm. Under
the  terms  of  certain  leases,   the  option  purchase  price  may  equal  the
Partnership's  original  cost to purchase  the Property  (including  acquisition
costs),  plus a specified  percentage  from the date of the lease or a specified
percentage of the  Partnership's  purchase price, if that amount is greater than
the Property's fair market value at the time the purchase option is exercised.

         The leases also  generally  provide that, in the event the  Partnership
wishes to sell the Property  subject to that lease,  the Partnership  first must
offer the  lessee  the right to  purchase  that  Property  on the same terms and
conditions,  and for the same  price,  as any offer  which the  Partnership  has
received for the sale of the Property.

Major Tenants

         During  2003,  two  lessees  (or groups of  affiliated  tenants) of the
Partnership and its consolidated joint venture,  (i) Golden Corral  Corporation,
and (ii) Jack in the Box Inc. and Jack in the Box Eastern Division,  L.P. (which
are  affiliated  entities  under  common  control  of  Jack  in  the  Box  Inc.)
(hereinafter  referred to as "Jack in the Box Inc."), each contributed more than
10% of the Partnership's  total rental revenues (including total rental revenues
from the Partnership's consolidated joint venture and the Partnership's share of
total rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
As of December 31, 2003,  Golden Corral  Corporation was the lessee under leases
relating to six restaurants and Jack in the Box Inc. was the lessee under leases
relating  to four  restaurants.  It is  anticipated  that,  based on the minimum
rental payments required by the leases,  these two lessees each will continue to
contribute more than 10% of the Partnership's  total rental revenues in 2004. In
addition,  three  Restaurant  Chains,  Golden Corral  Buffet and Grill  ("Golden
Corral"), Hardee's, and Jack in the Box, each accounted for more than 10% of the
Partnership's  total rental revenues in 2003 (including rental revenues from the
Partnership's  consolidated  joint venture and the Partnership's  share of total
rental  revenues from  Properties  owned by  unconsolidated  joint  ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
In 2004, it is anticipated that these three Restaurant Chains each will continue
to account for more than 10% of the Partnership's total rental revenues to which
the Partnership is entitled under the terms of the leases.  Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's  operating
results if the  Partnership  is not able to re-lease the  Properties in a timely
manner.  As of December 31, 2003,  Golden Corral  Corporation  leased Properties
with an  aggregate  carrying  value in excess of 20% of the total  assets of the
Partnership.


Joint Venture and Tenancy in Common Arrangements
<TABLE>

         The Partnership has entered into the following joint venture and tenancy in common arrangements as of December 31, 2003:
<S>     <C>    <C>    <C>    <C>    <C>    <C>

             Entity Name             Year     Ownership                Partners                 Property

    San Antonio  #849 Joint          1990       83.30%      Various third party partners     San Antonio, TX
         Venture

    CNL Restaurant Investments II    1991       18.00%      CNL Income Fund VIII, Ltd.       Dallas, TX
                                                            CNL Income Fund IX, Ltd.         Hastings, MN
                                                                                             New Castle, IN
                                                                                             Raceland, LA
                                                                                             San Antonio, TX

    Des Moines Real Estate Joint     1992       4.79%       CNL Income Fund XI, Ltd.         Des Moines, WA
         Venture                                            CNL Income Fund XII, Ltd.

    CNL Mansfield  Joint Venture     1997       79.00%      CNL Income Fund XVII, Ltd.       Arlington, TX

    CNL Income Fund II,  Ltd. and    1997       53.00%      CNL Income Fund II, Ltd.         Smithfield, NC
         CNL Income Fund VII,
         Ltd., Tenants in Common

    CNL Income Fund III, Ltd.,       1997       35.64%      CNL Income Fund III, Ltd.        Miami, FL
         CNL Income Fund VII,                               CNL Income Fund X, Ltd.
         Ltd., CNL Income Fund X,                           CNL Income Fund XIII, Ltd.
         Ltd. and CNL Income Fund
         XIII, Ltd., Tenants in
         Common

    CNL Income Fund VII, Ltd.,       1999       71.00%      CNL Income Fund IX, Ltd.         Montgomery, AL
         and CNL Income Fund IX,
         Ltd., Tenants in Common

    Duluth Joint Venture             1999       56.00%      CNL Income Fund XIV, Ltd.        Duluth, GA

    TGIF Pittsburgh Joint Venture    2000       36.88%      CNL Income Fund XV, Ltd.         Homestead, PA
                                                            CNL Income Fund XVI, Ltd.
                                                            CNL Income Fund XVIII, Ltd.

    CNL Income Fund VII, Ltd. and    2000       43.00%      CNL Income Fund XII, Ltd.        Colorado Springs, CO
         CNL Income Fund XII,
         Ltd., Tenants in Common

    CNL VII & XVII Lincoln Joint     2001       14.00%      CNL Income Fund XVII, Ltd.       Lincoln, NE
         Venture

    CNL VII, XV Columbus Joint       2001       68.75%      CNL Income Fund XV, Ltd.         Columbus, GA
         Venture

    Arlington Joint Venture          2002       79.00%      CNL Income Fund XVI, Ltd.        Arlington, TX

</TABLE>



         CNL  Restaurant  Investments  II was  formed  to hold  six  Properties,
however, all other joint ventures or tenancies in common were formed to hold one
Property.  Currently, CNL Restaurant Investments II owns five Properties because
during 2002 the joint  venture  sold a Property  and  distributed  the net sales
proceeds to the Partnership and the other co-venturers.  Each CNL Income Fund is
an affiliate  of the General  Partners  and is a limited  partnership  organized
pursuant to the laws of the state of Florida.  The  Partnership  has  management
control of San Antonio #849 Joint Venture and shares management  control equally
with the affiliates of the General Partners for the other joint ventures.

         The joint  venture and tenancy in common  arrangements  provide for the
Partnership and its partners to share in all costs and benefits in proportion to
each partner's  percentage  interest in the entity or Property.  The Partnership
and  its  partners  are  also  jointly  and  severally  liable  for  all  debts,
obligations and other liabilities of the joint venture or tenancy in common. Net
cash flow from  operations  is  distributed  to each joint venture or tenancy in
common  partner in accordance  with its  respective  percentage  interest in the
entity or Property.

         San Antonio #849 Joint  Venture,  Des Moines Real Estate Joint Venture,
CNL  Mansfield  Joint Venture and Duluth Joint Venture each have an initial term
of 20 years  and,  after  the  expiration  of the  initial  term,  continues  in
existence  from year to year  unless  terminated  at the option of either  joint
venturer  or by an event of  dissolution.  Events  of  dissolution  include  the
bankruptcy,  insolvency  or  termination  of any  joint  venturer,  sale  of the
Property owned by the joint venture and mutual  agreement of the Partnership and
its joint  venture  partner  to  dissolve  the joint  venture.  Any  liquidation
proceeds,  after paying joint venture debts and liabilities and funding reserves
for  contingent  liabilities,  will be  distributed  first to the joint  venture
partners with positive  capital account  balances in proportion to such balances
until such  balances  equal zero,  and  thereafter  in  proportion to each joint
venture  partner's  percentage  interest  in the joint  venture.  CNL VII & XVII
Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture, TGIF Pittsburgh Joint
Venture and Arlington  Joint Venture each have an initial term of 30 years.  CNL
Restaurant  Investment  II's joint  venture  agreement  does not provide a fixed
term, but continues in existence until terminated by any of the joint venturers.

         The joint  venture  and  tenancy  in common  agreements  restrict  each
party's ability to sell,  transfer or assign its interest without first offering
it for sale to its partner,  either upon such terms and  conditions  as to which
the  parties may agree or, in the event the parties  cannot  agree,  on the same
terms and  conditions  as any offer from a third  party to  purchase  such joint
venture or tenancy in common interest.

         The use of joint venture and tenancy in common  arrangements allows the
Partnership  to fully invest its available  funds at times at which it would not
have  sufficient  funds to purchase an additional  property,  or at times when a
suitable  opportunity to purchase an additional  property is not available.  The
use of joint  venture  and  tenancy in common  arrangements  also  provides  the
Partnership  with  increased  diversification  of its portfolio  among a greater
number of properties. In addition,  tenancy in common arrangements may allow the
Partnership  to defer the gain for federal  income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.

Certain Management Services

         RAI  Restaurants,  Inc.  (the  "Advisor"),  an affiliate of the General
Partners,  provided certain  services  relating to management of the Partnership
and its  Properties  pursuant to a management  agreement  with the  Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting  the  Properties  and the tenants'  books and records,  assisting the
Partnership  in  responding  to tenant  inquiries  and  notices,  and  providing
information  to  the  Partnership  about  the  status  of  the  leases  and  the
Properties.  The Advisor also assists the General  Partners in  negotiating  the
leases.  For these  services,  the  Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental  revenues  from  Properties
wholly owned by the Partnership plus the Partnership's  allocable share of gross
revenues of joint  ventures in which the  Partnership  is a co-venturer  and the
Property  held as  tenants-in-common  with an  affiliate,  but not in  excess of
competitive  fees  for  comparable  services.   Under  the  property  management
agreement, the property management fee is subordinated to receipt by the Limited
Partners of an aggregate, ten percent,  cumulative,  noncompounded annual return
on their adjusted capital contributions (the "10% Preferred Return"), calculated
in  accordance  with  the  Partnership's   limited  partnership  agreement  (the
"Partnership  Agreement").  In any year in which the Limited  Partners  have not
received the 10% Preferred Return, no property management fee will be paid.

         The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.

         During 2003,  CNL Capital  Management,  Inc.,  ("CCM"),  a wholly owned
subsidiary of CNL Financial  Group,  Inc.,  began  providing  certain  strategic
advisory  services  to  the  General  Partners  relative  to  the  Partnership's
business. CCM is not reimbursed for these services by the Partnership.  CCM also
began  providing  some  accounting  and  portfolio  management  services  to the
Partnership during 2003, through a subcontract with the Advisor.

Competition

         The fast-food and family-style  restaurant business is characterized by
intense  competition.  The restaurants on the Partnership's  Properties  compete
with  independently  owned  restaurants,  restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,  including
those offering different types of food and service.

Employees

         The  Partnership   has  no  employees.   The  officers  of  CNL  Realty
Corporation,  the officers  and  employees of CNL  Restaurant  Properties,  Inc.
(formerly  CNL  American  Properties  Fund,  Inc.),  the  parent  company of the
Advisor,  and the officers and employees of CCM perform certain services for the
Partnership.  In  addition,  the General  Partners  have  available  to them the
resources and  expertise of the officers and  employees of CNL Financial  Group,
Inc.,  a  diversified  real estate  company,  and its  affiliates,  who may also
perform certain services for the Partnership.

Item 2.  Properties

         As of December 31, 2003, the Partnership owned 35 Properties. Of the 35
Properties,  18  are  owned  by the  Partnership  in fee  simple,  13 are  owned
indirectly  through joint  venture  arrangements  and four are owned  indirectly
through tenancy in common arrangements. See Item 1. Business - Joint Venture and
Tenancy in Common Arrangements. The Partnership is not permitted to encumber its
Properties under the terms of its partnership agreement.

Description of Properties

         Land. The Partnership's  Property sites range from approximately 20,600
to 110,200  square  feet  depending  upon  building  size and local  demographic
factors.  Sites  purchased  by  the  Partnership  are  in  locations  zoned  for
commercial use which have been reviewed for traffic patterns and volume.

         The following  table lists the  Properties  owned,  either  directly or
indirectly, by the Partnership as of December 31, 2003 by state.

                State                                  Number of Properties

                Alabama                                              1
                Arizona                                              1
                Colorado                                             1
                Florida                                              3
                Georgia                                              3
                Indiana                                              1
                Louisiana                                            2
                Michigan                                             1
                Minnesota                                            1
                Nebraska                                             1
                North Carolina                                       1
                Ohio                                                 6
                Pennsylvania                                         1
                Tennessee                                            2
                Texas                                                9
                Washington                                           1
                                                                -------
                TOTAL PROPERTIES                                    35
                                                                =======

         Buildings.  Generally,  each of the Properties includes a building that
is one of a Restaurant Chain's approved designs.  However,  the building located
on the Checkers Property is owned by the tenant,  while the land parcel is owned
by the Partnership.  The Partnership's  buildings  generally are rectangular and
are constructed  from various  combinations of stucco,  steel,  wood,  brick and
tile.  The  sizes  of  the  buildings  owned  by  the  Partnership   range  from
approximately  700 to 10,600  square  feet.  All  buildings  on  Properties  are
freestanding  and surrounded by paved parking areas.  Buildings are suitable for
conversion to various uses, although  modifications may be required prior to use
for other than restaurant  operations.  As of December 31, 2003, the Partnership
had no plans for renovation of the Properties.  Depreciation expense is computed
for buildings and improvements using the straight-line  method using depreciable
lives of 40 years for federal income tax purposes.

         As of December 31, 2003, the aggregate cost of the Properties  owned by
the   Partnership   (including   its   consolidated   joint   venture)  and  the
unconsolidated joint ventures (including the Properties owned through tenancy in
common  arrangements),  for federal  income tax  purposes  was  $16,104,595  and
$22,548,895, respectively.

         The following  table lists the  Properties  owned,  either  directly or
indirectly, by the Partnership as of December 31, 2003 by Restaurant Chain.

                Restaurant Chain                         Number of Properties

                Bennigan's                                             1
                Burger King                                            6
                Checkers                                               1
                Chevy's Fresh Mex                                      1
                Golden Corral                                          6
                Hardee's                                               6
                IHOP                                                   1
                Jack in the Box                                        4
                KFC                                                    1
                Mama Fu's Noodle House                                 1
                Rally's                                                1
                Roadhouse Grill                                        1
                Sonny's Bar-B-Q                                        1
                Taco Bell                                              1
                Taco Cabana                                            2
                TGI Friday's                                           1
                                                                  -------
                TOTAL PROPERTIES                                      35
                                                                  =======

         The General Partners  consider the Properties to be well maintained and
sufficient for the Partnership's operations.

         The General Partners believe that the Properties are adequately covered
by  insurance.  In  addition,  the General  Partners  have  obtained  contingent
liability and property coverage for the Partnership.  This insurance is intended
to reduce the Partnership's  exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.

         Leases.   The  Partnership   leases  the  Properties  to  operators  of
Restaurant  Chains.  The leases are generally on a long-term "triple net" basis,
meaning that the tenant is responsible for repairs, maintenance, property taxes,
utilities and insurance.

         The  following  is a schedule  of the  average  rent per  Property  and
occupancy rates for each of the years ended December 31:
<TABLE>

                                   2003              2002              2001               2000               1999
                               -------------     -------------    ---------------     --------------     --------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Rental Revenues (1)             $ 2,887,017       $ 2,832,401        $ 2,686,849        $ 2,801,210        $ 2,902,968
Properties                               35                35                 35                 35                 40
Average Rent per
     Property                     $  82,486         $  80,926          $  76,767          $  80,035          $  72,574
Occupancy Rate                         100%              100%               100%               100%               100%

</TABLE>


(1)      Rental revenues include the Partnership's share of rental revenues from
         the Properties  owned  indirectly  through joint venture and tenancy in
         common arrangements.

         The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for the next ten years and thereafter.
<TABLE>

                                                                                     Percentage of
             Expiration Year          Number              Annual Rental              Gross Annual
                                     of Leases               Revenues                Rental Income
             -----------------    ----------------       -----------------     --------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

              2004                              1              $   137,061                   4.69%
              2005                              7                  522,156                  17.85%
              2006                              1                   60,826                   2.08%
              2007                             --                       --                      --
              2008                              2                  124,884                   4.27%
              2009                             --                       --                      --
              2010                              9                  730,546                  24.97%
              2011                             --                       --                      --
              2012                              4                  328,339                  11.22%
              2013                             --                       --                      --
              Thereafter                       11                1,021,645                  34.92%
                                        ----------       ------------------           -------------
              Total                            35             $  2,925,457                 100.00%
                                        ==========       ==================           =============
</TABLE>

         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  2003 (see Item 1.  Business -
Major  Tenants),  are  substantially  the  same as  those  described  in Item 1.
Business - Leases.

         Golden Corral  Corporation  leases six Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2004 and 2015) and the
average  minimum  base  annual  rent is  approximately  $155,000  (ranging  from
approximately $137,100 to $186,600).

         Jack in the Box  Inc.  leases  four  Jack in the Box  restaurants.  The
initial  term of each lease is 10 to 20 years  (expiring  between 2010 and 2018)
and the average minimum base annual rent is approximately $121,400 (ranging from
approximately $101,100 to $140,900).


Item 3. Legal Proceedings

         Neither the Partnership, nor its General Partners, nor any affiliate of
the  Partnership,  nor any of their  respective  properties,  is a party  to, or
subject to any material pending legal proceedings.


Item 4. Submission of Matters to a Vote of Security Holders

         Not applicable.
<PAGE>

                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

(a)     As of March 12, 2004,  there were 3,120 holders of record of the Units.
There is no public trading market for the Units,  and it is not anticipated that
a public market for the Units will develop.  During 2003,  Limited  Partners who
wished to sell their Units may have  offered the Units for sale  pursuant to the
Partnership's  distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their  distributions used to acquire additional Units (to the
extent Units were  available  for  purchase),  may have done so pursuant to such
Plan. The General Partners have the right to prohibit  transfers of Units.  From
inception  through  December 31, 2003,  the price paid for any Unit  transferred
pursuant to the Plan was $.95 per Unit. The price paid for any Unit  transferred
other than pursuant to the Plan was subject to  negotiation by the purchaser and
the selling  Limited  Partner.  The  Partnership  will not redeem or  repurchase
Units.

         The following table reflects,  for each calendar quarter, the high, low
and average  sales prices for transfers of Units during 2003 and 2002 other than
pursuant to the Plan, net of commissions.
<TABLE>

                                           2003 (1)                                 2002 (1)
                                --------------------------------         -------------------------------
                                    High        Low         Average       High       Low       Average
                                  ---------   ---------    ----------    --------   -------   ----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

        First Quarter                $  .95       $  .60       $   .89      $ .79      $ .60      $  .66
        Second Quarter                 2.38          .69          1.05         (2 )       (2 )        (2 )
        Third Quarter                   .79          .79           .79        .95        .95         .95
        Fourth Quarter                  .95          .83           .92       1.00        .60         .83
</TABLE>

(1)      A total of  415,931  and  118,320  Units  were  transferred  other than
         pursuant  to the Plan for the years ended  December  31, 2003 and 2002,
         respectively.

(2)      No transfer of Units took place during the quarter  other than pursuant
         to the plan.

         The  capital  contribution  per Unit was $1.  All  cash  available  for
distribution  will be distributed to the partners  pursuant to the provisions of
the Partnership Agreement.

         For each of the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000  were  declared to the Limited  Partners at the close of each of the
Partnership's  calendar  quarters  during 2003 and 2002.  These amounts  include
monthly  distributions  made in arrears  for the  Limited  Partners  electing to
receive  distributions on this basis. No amounts distributed to partners for the
years ended  December 31, 2003 and 2002, are required to be or have been treated
by the  Partnership  as a return of capital  for  purposes  of  calculating  the
Limited   Partners'   return  on  their  adjusted  capital   contributions.   No
distributions have been made to the General Partners to date.

         The  Partnership  intends to  continue  to make  distributions  of cash
available  for  distribution  to the  Limited  Partners  on a  quarterly  basis,
although some Limited  Partners,  in  accordance  with their  election,  receive
monthly distributions, for an annual fee.

(b)      Not applicable.

<PAGE>

Item 6.  Selected Financial Data
<TABLE>

Year ended December 31:                      2003            2002            2001           2000           1999
                                         --------------  -------------- --------------- -------------- --------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


   Continuing Operations:
      Revenues                             $ 1,890,982     $ 1,886,389     $ 2,043,814    $ 2,404,733    $ 2,581,576
   Equity in earnings of
      unconsolidated joint ventures            863,472       1,027,311         717,096        456,050        429,997

   Net income (1)                            2,228,667       2,343,522       2,215,570      3,221,515      2,545,690

   Income per Unit:
      Continuing operations                      0.074           0.078           0.074          0.107          0.085

   Cash distributions declared               2,700,000       2,700,000       2,700,000      2,700,000      2,700,000

   Cash distributions declared per
      Unit                                       0.090           0.090           0.090          0.090          0.090

   At December 31:
      Total assets                         $24,270,530    $ 24,712,885    $ 25,073,220   $ 25,607,914   $ 25,146,133
      Total partners' capital               23,368,760      23,840,093      24,196,571     24,681,001     24,159,486
</TABLE>

(1)      Net income for the years  ended  December  31,  2001,  2000,  and 1999,
         includes $382,122, $878,347, and $189,826,  respectively, from gains on
         sale of assets.

         The above selected  financial  data should be read in conjunction  with
the financial statements and related notes contained in Item 8 hereof.


Item 7.  Management's  Discussion  and Analysis of Financial  Condition  and
         Results of Operations

         The  Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture  arrangements,  both newly  constructed
and  existing  restaurant  Properties,  as well as land  upon  which  restaurant
Properties  were to be constructed,  which are leased  primarily to operators of
Restaurant Chains. The leases are generally  triple-net leases, with the lessees
generally responsible for all repairs and maintenance, property taxes, insurance
and  utilities.  The leases  provide for  minimum  base  annual  rental  amounts
(payable  in  monthly   installments)  ranging  from  approximately  $30,000  to
$259,900.  The majority of the leases provide for percentage rent based on sales
in excess of a specified amount. In addition, the majority of the leases provide
that,  commencing in specified lease years (generally the sixth lease year), the
annual  base rent  required  under the terms of the lease will  increase.  As of
December 31, 2001, 2002 and 2003, the Partnership  owned 18 Properties  directly
and held interest in 17 Properties  indirectly  through joint venture or tenancy
in common arrangements.

Capital Resources

         Cash  from  operating  activities  was  $2,731,994,   $2,648,131,   and
$2,479,263, for the years ended December 31, 2003, 2002, and 2001, respectively.
The increase in cash from  operating  activities  during 2003 and 2002,  each as
compared  to the  previous  year,  was a result of changes in the  Partnership's
working capital,  such as the timing of transactions  relating to the collection
of receivables and the payment of expenses,  and changes in income and expenses,
such as changes in rental revenues and changes in operating and Property related
expenses.

         Other  significant  sources  and uses of cash  included  the  following
during the years ended December 31, 2003, 2002, and 2001.

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
received from the 2000 sales of two Properties in Jacksonville,  Florida and the
Property in Lake City,  Florida in a Jack in the Box  Property  in Baton  Rouge,
Louisiana for a purchase  price of  approximately  $1,495,700.  The  Partnership
acquired  the  Property  from  CNL  Funding  2001-A,   LP,  a  Delaware  limited
partnership and an affiliate of the General Partners. The Partnership reinvested
the remaining  net sales  proceeds in additional  joint  venture  Properties.  A
portion of the  transaction  relating to the sales of these  Properties  and the
reinvestment of the net sales proceeds in additional  Properties  qualified as a
like-kind exchange transaction for federal income tax purposes.
<PAGE>

         The Partnership  had a mortgage note  receivable  relating to a sale in
1995  of  a  Property  in  Florence,  South  Carolina.  In  February  2001,  the
Partnership  received  a  balloon  payment  of  $1,115,301  which  included  the
outstanding  principal balance and $14,419 of accrued interest.  The Partnership
used the  majority  of the net sales  proceeds to acquire a Property in Lincoln,
Nebraska,  and a  Property  in  Columbus,  Georgia,  each of which is held  with
affiliates of the General Partners as tenants-in-common.

         In April 2001, the Partnership  used a portion of the proceeds from the
2000 sale of the  Property  in  Friendswood,  Texas and a portion  of the amount
collected from the promissory  note accepted in connection with the 1995 sale of
a  Property  in  Florence,   South  Carolina,  to  invest  in  a  joint  venture
arrangement,  CNL VII & XVII Lincoln Joint  Venture,  with CNL Income Fund XVII,
Ltd., a Florida limited  partnership and affiliate of the General  Partners,  to
purchase and hold a Property in Lincoln,  Nebraska for a total purchase price of
$1,740,374.  The joint  venture  acquired  the  Property  from CNL BB Corp.,  an
affiliate of the General Partners,  who had purchased and temporarily held title
to the Property in order to facilitate  the  acquisition  of the Property by the
joint venture.  The purchase price paid  represents the costs incurred by CNL BB
Corp. to acquire and carry the Property.  The Partnership owns a 14% interest in
the profits and losses of the joint venture.

         In August 2001,  the  Partnership  used the other portion of the amount
collected from the promissory note to invest in a joint venture arrangement, CNL
VII, XV Columbus Joint Venture, with CNL Income Fund XV, Ltd., a Florida limited
partnership and affiliate of the General Partners, to purchase and construct one
restaurant  Property  in  Columbus,   Georgia.   During  2001,  the  Partnership
contributed  approximately  $1,025,500 to purchase land and pay for construction
costs  relating to the joint  venture  and  contributed  $76,700  during 2002 to
complete the construction. The Partnership owns a 68.75% interest in the profits
and losses of this joint venture.

         In November 2001, the Partnership  sold its Properties in Daytona Beach
and  Gainesville,  Florida to the tenant in accordance  with the purchase option
under the  lease  agreements  and  received  aggregate  net  sales  proceeds  of
$499,813,  resulting in a gain of $184,894.  In connection with the sales of the
Properties,   the  Partnership   received  $396,232  in  cash  and  accepted  an
uncollateralized  promissory  note in the  amount  of  $103,581  related  to the
Property in Daytona Beach,  Florida. In October 2002, the Partnership received a
payment of $114,304 which included the outstanding principal balance and $10,723
of accrued interest.

         In December 2001,  the  Partnership  sold its Property in  Saddlebrook,
Florida to a third party and received net sales proceeds of $698,050,  resulting
in a gain of $74,232.  The Partnership  used the net sales proceeds to invest in
additional joint venture Properties.

         During 2002, the Partnership used the proceeds from the sale of several
of its Properties in 2001 to enter into a joint venture  arrangement,  Arlington
Joint Venture, with CNL Income Fund XVI, Ltd., a Florida limited partnership and
an affiliate of the General  Partners.  The joint venture acquired a Property in
Arlington,  Texas at an  approximate  cost of $1,003,600.  In addition,  in June
2002,  CNL  Restaurant  Investments  II,  in which the  Partnership  owns an 18%
interest, sold its Property in Columbus, Ohio to the tenant for a sales price of
approximately  $1,219,600  and  received  net sales  proceeds  of  approximately
$1,215,700, resulting in a gain of $448,300. The joint venture used the proceeds
from this sale to acquire a Property in Dallas,  Texas at an approximate cost of
$1,147,400.  The joint  ventures  acquired  these  Properties  from CNL  Funding
2001-A,  LP, a Delaware  limited  partnership  and an  affiliate  of the General
Partners.  The purchase price paid by the joint ventures  represented  the costs
incurred by CNL Funding  2001-A,  LP to acquire  and carry the  Properties.  The
transaction  relating  to the sale of the  Property  in  Columbus,  Ohio and the
reinvestment  of the net sales proceeds was structured to qualify as a like-kind
exchange transaction for federal income tax purposes.

         In June 2002, CNL  Restaurant  Investments II also sold its Property in
Pontiac,  Michigan to the tenant for a sales price of $725,000  and received net
sales  proceeds of  approximately  $722,600.  The sale resulted in a loss to the
joint  venture of  approximately  $189,800.  The tenant  exercised its option to
purchase the Property under the terms of the lease.  As of December 31, 2002 the
Partnership received $129,888,  representing its pro rata share of the net sales
proceeds as a return of capital.
<PAGE>

         In August  2002,  CNL  Mansfield  Joint  Venture  sold its  property in
Mansfield,  Texas to the tenant for a sales price of $1,045,000 and received net
sales proceeds of approximately $1,011,500, resulting in a gain of approximately
$269,800.  In September 2002, CNL Mansfield Joint Venture used the proceeds from
the sale of the Property and an additional contribution of approximately $63,900
received from the Partnership to acquire a Property in Arlington, Texas from CNL
Net Lease Investors,  L.P.  ("NLI"),  a California  limited  partnership,  at an
approximate cost of $1,089,900. The sale of the Property and the reinvestment of
the net sales  proceeds  was  structured  to  qualify  as a  like-kind  exchange
transaction for federal income tax purposes. During 2002, and prior to the joint
venture's acquisition of this Property,  CNL Financial LP Holding, LP ("CFN"), a
Delaware limited partnership,  and CNL Net Lease Investors GP Corp. ("GP Corp"),
a Delaware  corporation,  purchased the limited  partner's  interest and general
partner's  interest,  respectively,  of  NLI.  Prior  to  this  transaction,  an
affiliate of the Partnership's general partners owned a 0.1% interest in NLI and
served as a general partner of NLI. The original  general partners of NLI waived
their rights to benefit from this transaction. The acquisition price paid by CFN
for the limited partner's interest was based on the portfolio acquisition price.
The joint venture  acquired the Property in  Arlington,  Texas at CFN's cost and
did not pay  any  additional  compensation  to CFN  for the  acquisition  of the
Property. Each CNL entity is an affiliate of the Partnership's General Partners.

         None of the Properties owned by the Partnership,  or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest,  is
or may be  encumbered.  Under its  partnership  agreement,  the  Partnership  is
prohibited from borrowing for any purpose;  provided,  however, that the General
Partners or their affiliates are entitled to reimbursement,  at cost, for actual
expenses  incurred by the General  Partners or their affiliates on behalf of the
Partnership.  Affiliates of the General Partners from time to time incur certain
operating  expenses  on behalf  of the  Partnership  for  which the  Partnership
reimburses the affiliates without interest.

         At December 31, 2003, the Partnership had $979,093 invested in cash and
cash  equivalents  as compared to $972,797 at December 31, 2002. At December 31,
2003,  these  funds were held in demand  deposit  and money  market  accounts at
commercial  banks. As of December 31, 2003, the average  interest rate earned on
rental  income held in demand  deposit and money market  accounts at  commercial
banks was less than one percent  annually.  The funds  remaining at December 31,
2003,  after payment of  distributions  and other  liabilities,  will be used to
invest in additional  Properties and to meet the  Partnership's  working capital
needs.

Short-Term Liquidity

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         The Partnership's  short-term liquidity  requirements consist primarily
of the operating expenses of the Partnership.

         The General  Partners have the right,  but not the obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

         Due to low  operating  expenses  and  ongoing  cash flow,  the  General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition,  because all leases of the Partnership's  Properties are
on a  triple-net  basis,  it is not  anticipated  that a  permanent  reserve for
maintenance  and  repairs  will be  established  at this  time.  To the  extent,
however,  that the Partnership  has  insufficient  funds for such purposes,  the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.

         The Partnership  generally  distributes cash from operating  activities
remaining after the payment of the operating expenses of the Partnership, to the
extent that the General  Partners  determine  that such funds are  available for
distribution.  Based  primarily  on current  and  anticipated  future  cash from
operations,  the Partnership  declared  distributions to the Limited Partners of
$2,700,000 for each of the years ended December 31, 2003,  2002, and 2001.  This
represents distributions of $0.090 per Unit for each of the years ended December
31, 2003, 2002, and 2001. No amounts distributed to the Limited Partners for the
years ended  December 31, 2003,  2002,  and 2001 are required to be or have been
treated by the  Partnership  as a return of capital for purposes of  calculating
the  Limited  Partners'  return on their  adjusted  capital  contributions.  The
Partnership  intends to continue to make  distributions  of cash  available  for
distribution  to the Limited  Partners on a quarterly  basis.

         During 2000, the General  Partners waived their right to receive future
distributions  from the Partnership,  including both  distributions of operating
cash flow and  distributions  of  liquidation  proceeds,  to the extent that the
cumulative amount of such distributions  would exceed the balance in the General
Partners'  capital  account as of December  31, 1999.  Accordingly,  the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002 and 2001.

         As of December  31, 2003 and 2002,  the  Partnership  owed  $11,333 and
$13,151,  respectively, to affiliates for accounting and administrative services
and other  amounts.  As of March 12, 2004,  the  Partnership  had reimbursed the
affiliates  for  these  amounts.  Other  liabilities,   including  distributions
payable,  of the Partnership  were $754,240 at December 31, 2003, as compared to
$720,696 at December 31, 2002. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.

Off-Balance Sheet Transactions

         The Partnership holds interests in various unconsolidated joint venture
and  tenancy  in common  arrangements  that are  accounted  for using the equity
method.  The  General  Partners  do not  believe  that any such  interest  would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.

Contractual Obligations, Contingent Liabilities, and Commitments

         The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.

Long-Term Liquidity

         The  Partnership  has no long-term  debt or other  long-term  liquidity
requirements.

Critical Accounting Policies

         The  Partnership's  leases are  accounted  for under the  provisions of
Statement of Financial  Accounting  Standards  No. 13,  "Accounting  for Leases"
("FAS 13"), and have been accounted for using either the direct financing or the
operating methods.  FAS 13 requires  management to estimate the economic life of
the leased  property,  the residual value of the leased property and the present
value of minimum  lease  payments to be received  from the tenant.  In addition,
management  assumes  that all  payments  to be  received  under its  leases  are
collectible.   Changes  in  management's   estimates  or  assumption   regarding
collectibility  of lease payments could result in a change in accounting for the
lease.

         The Partnership  accounts for its  unconsolidated  joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is  appropriate  for entities that are partially
owned by the  Partnership,  but for which  operations of the investee are shared
with other partners.  The  Partnership's  joint venture  agreements  require the
consent of all partners on all key  decisions  affecting  the  operations of the
underlying Property.

         Management  reviews the  Partnership's  Properties  and  investments in
unconsolidated  entities for impairment at least once a year or whenever  events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be  recoverable.  The  assessment  is based on the  carrying  amount  of the
Property or investment at the date it is tested for  recoverability  compared to
the sum of the estimated future cash flows expected to result from its operation
and sale through the expected holding period. If an impairment is indicated, the
asset is adjusted to its estimated fair value.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
Financial  Accounting  Standards  No.  144  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets."  Accordingly,  when the  Partnership  makes the
decision  to sell or commits to a plan to sell a Property  within one year,  its
operating results are reported as discontinued operations.



Results of Operations

Comparison of year ended December 31, 2003 to year ended December 31, 2002

         Rental revenues from continuing  operations for the Partnership and its
consolidated  joint venture were $1,769,553 for the year ended December 31, 2003
as compared to $1,780,431  during the same period of 2002.  Rental revenues from
continuing operations during the year ended December 31, 2003 remained constant,
as compared to the year ended  December 31,  2002,  since there was no change in
the leased property portfolio.

         The Partnership also earned $91,566 in contingent rental income for the
year ended December 31, 2003 as compared to $74,165 for the same period of 2002.
The increase in  contingent  rental income  during 2003 was  attributable  to an
increase in gross sales of certain  restaurant  Properties,  the leases of which
require the payment of contingent rent.

         During the year  ended  December  31,  2003 and 2002,  the  Partnership
earned $863,472 and $1,027,311, respectively,  attributable to net income earned
by unconsolidated joint ventures. Net income earned by joint ventures was higher
during 2002 as compared to 2003 because in August 2002, Mansfield Joint Venture,
in which the  Partnership  owns a 79% interest,  sold the Property in Mansfield,
Texas.  The  Partnership  recorded its pro-rata share of the gain resulting from
the sale of this  Property as equity in earnings.  The net sales  proceeds  were
reinvested in a Property in Arlington,  Texas.  In addition,  in June 2002,  CNL
Restaurant  Investments II Joint Venture,  in which the Partnership  owns an 18%
interest,  sold its  Properties in Columbus,  Ohio and Pontiac,  Michigan to the
tenant. The Partnership  recorded its pro-rata share of the gains resulting from
the sales of these Properties as equity in earnings.  The decrease in net income
earned by  unconsolidated  joint  ventures  during 2003 was partially  offset by
earnings  related to Arlington Joint Venture which the  Partnership  acquired in
June 2002. The decrease in net income earned by joint  ventures  during 2003 was
also  partially  offset by the fact that the  tenant  of the  Property  owned by
Duluth Joint  Venture,  in which the  Partnership  owns a 56% interest,  resumed
making rental  payments to the joint venture  during the second quarter of 2002.
The tenant of the Property had previously experienced financial difficulties and
had ceased making rental payments to the joint venture. Duluth Joint Venture had
stopped recording rental revenues during the quarter ended March 31, 2002.

         During the year ended  December  31,  2003,  two  lessees (or groups of
affiliated  tenants) of the Partnership and its consolidated joint venture,  (i)
Golden  Corral  Corporation,  and (ii) Jack in the Box Inc.  and Jack in the Box
Eastern  Division,  L.P. (which are affiliated  entities under common control of
Jack in the Box Inc.) (hereinafter  referred to as "Jack in the Box Inc."), each
contributed more than 10% of the Partnership's  total rental revenues (including
total rental revenues from the Partnership's  consolidated joint venture and the
Partnership's   share  of  total  rental  revenues  from  Properties   owned  by
unconsolidated  joint  ventures  and  Properties  owned with  affiliates  of the
General Partners as  tenants-in-common).  As of December 31, 2003, Golden Corral
Corporation was the lessee under leases relating to six restaurants, and Jack in
the Box Inc.  was the lessee under leases  relating to four  restaurants.  It is
anticipated  that, based on the minimum rental payments  required by the leases,
Golden  Corral  Corporation  and Jack in the Box  Inc.,  each will  continue  to
contribute more than 10% of the Partnership's total rental revenues during 2004.
In addition,  during the year ended December 31, 2003, three Restaurant  Chains,
Golden Corral, Hardee's and Jack in the Box, each accounted for more than 10% of
the  Partnership's  total rental revenues  (including total rental revenues from
the  Partnership's  consolidated  joint venture and the  Partnership's  share of
total rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
In 2004, it is anticipated that these three Restaurant Chains each will continue
to account for more than 10% of the Partnership's total rental revenues to which
the Partnership is entitled under the terms of the leases.  Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's  operating
results if the  Partnership  is not able to re-lease the  Properties in a timely
manner.

         During the years ended December 31, 2003 and 2002, the Partnership also
earned $29,863 and $31,793, respectively, in interest and other income.

         Operating expenses,  including  depreciation expense, were $502,837 for
the year ended  December 31, 2003 as compared to $551,657 for the same period of
2002.  Operating  expenses  were  higher  during  2002 due to the fact  that the
Partnership  elected  to  reimburse  the  tenant of the  Properties  in El Paso,
Harlingen, and Odessa, Texas for certain renovation costs.

         In  addition,  the  decrease in  operating  expenses  during  2003,  as
compared  to the same  period of 2002,  was  partially  due to a decrease in the
costs incurred for administrative expenses for servicing the Partnership and its
Properties.  In  October  2003,  CNL  Restaurant  Investments  II  entered  into
negotiations with a third party to sell the Property in San Antonio,  Texas.

         The financial  results of this  Property are reflected as  discontinued
operations  in  the  combined  condensed  joint  venture  financial  information
presented in the footnotes to the accompanying financial statements.

Comparison of year ended December 31, 2002 to year ended December 31, 2001

         Rental revenues from continuing  operations for the Partnership and its
consolidated  joint venture were $1,780,431 for the year ended December 31, 2002
as compared to $1,866,700 during the same period of 2001. The decrease in rental
revenues from continuing operations was primarily due to the sales of several of
the  Partnership's  Properties during 2001 and the reinvestment of the net sales
proceeds in a joint venture during 2002. As a result, net income earned by joint
ventures  increased in 2002 while rental  revenues  from  continuing  operations
decreased.  The  decrease in rental  revenues  from  continuing  operations  was
partially offset by the fact that in January 2001, the Partnership  reinvested a
portion of these net sales proceeds in a Property in Baton Rouge, Louisiana.

         The Partnership also earned $74,165 in contingent rental income for the
year ended December 31, 2002 as compared to $75,571 for the same period of 2001.

         During the year  ended  December  31,  2002 and 2001,  the  Partnership
earned $1,027,311 and $717,096, respectively,  attributable to net income earned
by  unconsolidated  joint  ventures.  The increase in net income earned by joint
ventures during the year ended December 31, 2002, as compared to the same period
of  2001,  was  primarily  due to the fact  that in June  2002,  CNL  Restaurant
Investments  II,  in  which  the  Partnership  owns an 18%  interest,  sold  its
Properties  in  Columbus,  Ohio  and  Pontiac,   Michigan  to  the  tenant.  The
Partnership recorded its pro-rata share of the gains resulting from the sales of
these  Properties as equity in earnings.  The increase was also  attributable to
earnings received from the new joint venture arrangements with affiliates of the
General Partners,  CNL VII & XVII Lincoln Joint Venture and CNL VII, XV Columbus
Joint  Venture  acquired in April and August 2001,  respectively,  and Arlington
Joint Venture  acquired in June 2002. The increase in net income earned by joint
ventures  during the year ended  December 31, 2002 was  partially  offset by the
fact that the tenant of the Property owned by Duluth Joint Venture, in which the
Partnership owns a 56% interest,  experienced financial  difficulties and ceased
making rental payments to the joint venture.  As a result,  Duluth Joint Venture
stopped  recording  rental  revenues  during the quarter  ended March 31,  2002.
During the second  quarter of 2002,  the tenant began making rental  payments to
the joint  venture  and the joint  venture  recognized  these  amounts as rental
revenues.  In addition,  during 2002, the joint venture recorded a provision for
write-down of assets of  approximately  $65,800.  The provision  represented the
difference  between the  Property's  net carrying  value and its estimated  fair
value.

         During the years ended December 31, 2002 and 2001, the Partnership also
earned  $31,793 and $101,543,  respectively,  in interest and other income.  The
decrease  in  interest  and other  income  during  2002 was  primarily  due to a
decrease in the average  cash balance as a result of the  reinvestment  of sales
proceeds in additional  Properties  through joint  venture  arrangements  during
2002, the  collection of the  promissory  note, as well as a decline in interest
rates.

         Operating expenses,  including  depreciation  expense and provision for
write-down  of assets,  were  $551,657  for the year ended  December 31, 2002 as
compared to $909,120 for the same period of 2001. Operating expenses were higher
during  2001 due to the fact  that the  Partnership  recorded  a  provision  for
write-down  of assets of $279,862  for the Property in  Saddlebrook,  Florida in
June 2001. The tenant ceased restaurant operations and vacated the Property. The
provision  represented the difference between the carrying value of the Property
and its  estimated  fair value at June 30, 2001.  In addition,  the  Partnership
incurred  expenses such as repairs and  maintenance and real estate taxes during
2001 in connection  with this Property.  The  Partnership  sold this Property in
December 2001.

         In  addition,  the  decrease in  operating  expenses  during  2002,  as
compared  to the same  period of 2001,  was  partially  due to a decrease in the
costs incurred for administrative expenses for servicing the Partnership and its
Properties and due to the Partnership incurring less depreciation expense during
2002 as a result of the sale of several Properties in 2001.

         The decrease in operating expenses during 2002, as compared to the same
period  of  2001,  was  partially  offset  by the fact  that  during  2002,  the
Partnership  elected  to  reimburse  the  tenant of the  Properties  in El Paso,
Harlingen, and Odessa, Texas for certain renovation costs.

         During 2001, the Partnership  collected the outstanding  balance of the
mortgage  note  relating  to the 1995 sale of the  Property in  Florence,  South
Carolina and recognized $122,996 of previously deferred gain related to the sale
of the Property. The Partnership recorded the sale using the installment method,
and as such,  the gain was deferred and recognized as income  proportionally  as
payments under the mortgage note were collected.

         As a result  of the  sales  of  several  Properties  during  2001,  the
Partnership recognized gains totaling $382,122.

         During the year ended December 31 2002,  CNL Restaurant  Investments II
and CNL Mansfield  Joint Venture  identified and sold three  Properties that are
reflected as  discontinued  operations in the combined  condensed  joint venture
financial information  presented in the footnotes to the accompanying  financial
statements.  During 2002,  CNL  Restaurant  Investments  II sold its Property in
Columbus, Ohio to the tenant and recognized a gain of approximately $448,300 and
sold its  Property in Pontiac,  Michigan  to the tenant  resulting  in a loss of
approximately  $189,800.  CNL  Mansfield  Joint  Venture  sold its  Property  in
Mansfield,  Texas and recognized a gain of approximately $269,800. The financial
results of these  Properties  are  reflected as  discontinued  operations in the
condensed joint venture financial  information presented in the footnotes to the
accompanying  financial  statements.  The  tenants  exercised  their  option  to
purchase  the  Properties  under the terms of their  respective  leases  and the
proceeds  from  the  sales  were  reinvested  in  additional   income  producing
Properties.

         The General Partners continuously  evaluate strategic  alternatives for
the  Partnership,  including  alternatives  to provide  liquidity to the Limited
Partners.

         The  Partnership's  leases  as of  December  31,  2003,  are  generally
triple-net  leases and  contain  provisions  that the General  Partners  believe
mitigate  the adverse  effect of  inflation.  Such  provisions  include  clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified  level and/or  automatic  increases in base rent at specified  times
during the term of the lease.  Inflation,  overall,  has had a minimal effect on
results of operations of the  Partnership.  Continued  inflation  also may cause
capital  appreciation of the  Partnership's  Properties.  Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.

         In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")
issued  FASB  Interpretation  No.  46 ("FIN  46"),  "Consolidation  of  Variable
Interest Entities" to expand upon and strengthen  existing  accounting  guidance
that  addresses  when a company  should  include  the  assets,  liabilities  and
activities of another entity in its financial  statements.  To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable  interest entity be consolidated by a company if that company is
subject  to a  majority  risk  of  loss  from  the  variable  interest  entity's
activities or entitled to receive a majority of the entity's residual returns or
both.  Prior to FIN 46, a  company  generally  included  another  entity  in its
consolidated  financial  statements  only if it  controlled  the entity  through
voting interests.  In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46  prior  to  issuance  of FIN 46R.  Otherwise,  application  of FIN 46R is
required in  financial  statements  of public  entities  that have  interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers,  for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially  apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership  does not have interests in structures  commonly  referred to as
special-purpose entities.  Therefore,  application of FIN 46R is required in the
Partnership's  financial statements for periods ending after March 15, 2004. The
General  Partners  believe  adoption  of this  standard  may  result  in  either
consolidation  or  additional  disclosure   requirements  of  the  Partnership's
unconsolidated  joint  ventures,  which are  currently  accounted  for under the
equity method.  However,  such  consolidation  is not expected to  significantly
impact the Partnership's results of operations.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

Item 8.  Financial Statements and Supplementary Data


<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                                    CONTENTS



                                                                         Page
Report of Independent Certified Public Accountants                        17

Financial Statements:
     Balance Sheets                                                       18

     Statements of Income                                                 19

     Statements of Partners' Capital                                      20

     Statements of Cash Flows                                          21-22

     Notes to Financial Statements                                     23-34

<PAGE>












               Report of Independent Certified Public Accountants





To the Partners
CNL Income Fund VII, Ltd.

In our opinion,  the accompanying  balance sheets and the related  statements of
income,  of partners'  capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund VII, Ltd. (a Florida limited
partnership)  at December 31, 2003 and 2002,  and the results of its  operations
and its cash flows for each of the three years in the period ended  December 31,
2003 in conformity with accounting  principles  generally accepted in the United
States  of  America.  In  addition,  in our  opinion,  the  financial  statement
schedules listed in the index appearing under item 15(a)(2)  present fairly,  in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related financial  statements.  These financial  statements
and financial  statement  schedules are the  responsibility of the Partnership's
management;  our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedules based on our audits. We conducted
our audits of these statements in accordance with auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.





/s/ PricewaterhouseCoopers LLP

Orlando, Florida
March 24, 2004

<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                                 BALANCE SHEETS

<TABLE>

                                                                                     December 31,
                                                                              2003                  2002
                                                                         ----------------     -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                ASSETS

   Real estate properties with operating leases, net                        $ 10,885,752          $ 11,109,588
   Net investment in direct financing leases                                   2,221,535             2,344,317
   Investment in joint ventures                                                8,985,452             9,083,991
   Cash and cash equivalents                                                     979,093               972,797
   Receivables                                                                    94,390                68,597
   Accrued rental income                                                       1,018,973             1,042,794
   Other assets                                                                   85,335                90,801
                                                                         ----------------     -----------------

                                                                            $ 24,270,530          $ 24,712,885
                                                                         ================     =================

                   LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable and accrued expenses                                      $    6,203            $    4,551
   Distributions payable                                                         675,000               675,000
   Due to related parties                                                         11,333                13,151
   Rents paid in advance                                                          73,037                41,145
                                                                         ----------------     -----------------
            Total liabilities                                                    765,573               733,847

   Minority interest                                                             136,197               138,945

   Partners' capital                                                          23,368,760            23,840,093
                                                                         ----------------     -----------------

                                                                            $ 24,270,530          $ 24,712,885
                                                                         ================     =================
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                              STATEMENTS OF INCOME

<TABLE>

                                                                                 Year Ended December 31,
                                                                      2003                 2002                2001
                                                                ------------------   ------------------   ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Revenues:
     Rental income from operating leases                            $   1,489,994        $   1,486,761      $  1,559,410
     Earned income from direct financing leases                           279,559              293,670           307,290
     Contingent rental income                                              91,566               74,165            75,571
     Interest and other income                                             29,863               31,793           101,543
                                                                ------------------   ------------------   ---------------
                                                                        1,890,982            1,886,389         2,043,814
                                                                ------------------   ------------------   ---------------
Expenses:
     General operating and administrative                                 231,555              237,355           273,351
     Property related                                                      12,116               61,025            75,250
     State and other taxes                                                 35,330               29,446            33,922
     Depreciation                                                         223,836              223,831           246,735
     Provision for write-down of assets                                        --                   --           279,862
                                                                ------------------   ------------------   ---------------
                                                                          502,837              551,657           909,120
                                                                ------------------   ------------------   ---------------

Income before gain on sale of assets, minority interest
and equity in earnings of unconsolidated joint
     ventures                                                           1,388,145            1,334,732         1,134,694

Gain on sale of assets                                                         --                   --           382,122

Minority interest                                                         (22,950 )            (18,521 )         (18,342 )

Equity in earnings of unconsolidated joint ventures                       863,472            1,027,311           717,096
                                                                ------------------   ------------------   ---------------

Net income                                                          $   2,228,667        $   2,343,522      $  2,215,570
                                                                ==================   ==================   ===============

Income per limited partner unit                                       $     0.074          $     0.078        $    0.074
                                                                ==================   ==================   ===============

Weighted average number of
     limited partner units outstanding                                 30,000,000           30,000,000        30,000,000
                                                                ==================   ==================   ===============
</TABLE>


                 See accompanying notes to financial statements.

<PAGE>






                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                         STATEMENTS OF PARTNERS' CAPITAL

                  Years Ended December 31, 2003, 2002, and 2001

<TABLE>

                                                General Partners                                  Limited Partners
                                  --------------------------------------     -----------------------------------------------------
                                                         Accumulated                                               Accumulated
                                    Contributions         Earnings         Contributions       Distributions         Earnings
                                  ------------------   ----------------   -----------------   ----------------   -----------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>

Balance, December 31, 2000          $     1,000        $   229,931       $  30,000,000      $ (28,277,623 )     $  26,167,693

    Distributions to limited
      partners ($0.090 per
      limited partner unit)                  --                 --                  --         (2,700,000 )                --
    Net income                               --                 --                  --                 --           2,215,570
                                 ---------------   ----------------   -----------------   ----------------   -----------------

Balance, December 31, 2001                1,000            229,931          30,000,000        (30,977,623 )        28,383,263

    Distributions to limited
      partners ($0.090 per
      limited partner unit)                  --                 --                  --         (2,700,000 )                --
    Net income                               --                 --                  --                 --           2,343,522
                                 ---------------   ----------------   -----------------   ----------------   -----------------

Balance, December 31, 2002                1,000            229,931          30,000,000        (33,677,623 )        30,726,785

    Distributions to limited
      partners ($0.090 per
      limited partner unit)                  --                 --                  --         (2,700,000 )                --
    Net income                               --                 --                  --                 --           2,228,667
                                 ---------------   ----------------   -----------------   ----------------   -----------------

Balance, December 31, 2003          $     1,000        $   229,931       $  30,000,000      $ (36,377,623 )     $  32,955,452
                                 ===============   ================   =================   ================   =================
</TABLE>
                 See accompanying notes to financial statements.

<PAGE>


  Syndication
     Costs            Total
 --------------   --------------



 $ (3,440,000 )    $24,681,001



        --       (2,700,000 )
        --        2,215,570
--------------   --------------

(3,440,000 )     24,196,571



        --       (2,700,000 )
        --        2,343,522
--------------   --------------

(3,440,000 )     23,840,093



        --       (2,700,000 )
        --        2,228,667
--------------   --------------

 $ (3,440,000 )    $23,368,760
 ==============   ==============



                 See accompanying notes to financial statements.
<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                            STATEMENTS OF CASH FLOWS


<TABLE>

                                                                                 Year Ended December 31,
                                                                       2003                  2002                2001
                                                                  ----------------    -------------------    ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash Flows from Operating Activities:
      Net income                                                      $  2,228,667          $  2,343,522        $   2,215,570
                                                                  -----------------   -------------------   ------------------

      Adjustments to reconcile net income to net cash
         provided by operating activities:
             Depreciation                                                  223,836               223,831              246,735
             Amortization of net investment in direct financing            122,782               108,647               95,360
                leases
             Minority interest                                              22,950                18,521               18,342
             Gain on sale of assets                                             --                    --             (382,122 )
             Provision for loss on real estate properties                       --                    --              279,862
             Equity in earnings of unconsolidated joint
                ventures, net of distributions                              98,539               (66,871 )              9,531
             Decrease (increase) in receivables                            (25,839 )               5,546               12,254
             Decrease (increase) in due from related parties                    46                12,922              (11,712 )
             Decrease in interest receivable                                    --                 1,136               18,335
             Decrease (increase) in other assets                             5,466               (13,906 )             10,635
             Decrease in accrued rental income                              23,821                15,795               14,159
             Increase (decrease) in accounts payable and
                accrued expenses                                             1,652                (7,755 )            (19,109 )
             Decrease in due to related parties                             (1,818 )              (8,686 )            (45,978 )
             Increase in rents paid in advance                              31,892                15,429               17,401
                                                                  -----------------   -------------------   ------------------
                  Total adjustments                                        503,327               304,609              263,693
                                                                  -----------------   -------------------   ------------------


Net cash provided by operating activities                                2,731,994             2,648,131            2,479,263
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Investing Activities:
      Additions to real estate properties with operating leases                 --                    --           (1,495,699 )
      Proceeds from sale of real estate properties                              --                    --            1,094,282
      Investment in certificate of deposit                                      --                    --              100,000
      Investment in joint ventures                                              --              (934,800 )         (1,769,135 )
      Return of capital from joint venture                                      --               129,888                   --
      Decrease in restricted cash                                               --                    --            1,503,682
      Collections on mortgage notes receivable                                  --               103,581            1,101,865
                                                                  -----------------   -------------------   ------------------
         Net cash (used in) provided by investing activities                    --              (701,331 )            534,995
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Financing Activities:
      Distributions to limited partners                                 (2,700,000 )          (2,700,000 )         (2,700,000 )
      Distributions to holders of minority interest                        (25,698 )             (21,366 )            (20,920 )
                                                                  -----------------   -----------------     ------------------
         Net cash used in financing activities                          (2,725,698 )          (2,721,366 )         (2,720,920 )
                                                                  -----------------   -------------------   ------------------

Net increase (decrease) in cash and cash equivalents                         6,296              (774,566 )            293,338

Cash and cash equivalents at beginning of year                             972,797             1,747,363            1,454,025
                                                                  -----------------   -------------------   ------------------

Cash and cash equivalents at end of year                              $    979,093          $    972,797        $   1,747,363
                                                                  =================   ===================   ==================

</TABLE>
                 See accompanying notes to financial statements.
<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>

                                                                             Year Ended December 31,
                                                                    2003               2002              2001
                                                              -----------------   ---------------    --------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Supplemental Schedule of Non-Cash Financing Activities:

         Promissory note accepted in exchange for
             sale of land and building                                $     --           $    --        $  103,581
                                                              =================   ===============    ==============

         Distributions declared and unpaid at
             December 31                                           $   675,000        $  675,000     $     675,000
                                                              =================   ===============    ==============
</TABLE>
<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001

1.       Significant Accounting Policies

         Organization  and Nature of Business - CNL Income Fund VII,  Ltd.  (the
         "Partnership") is a Florida limited  partnership that was organized for
         the purpose of acquiring both newly constructed and existing restaurant
         properties,  as well as properties  upon which  restaurants  were to be
         constructed,  which are leased  primarily  to operators of national and
         regional fast-food and family-style restaurant chains.

         The general partners of the Partnership are CNL Realty Corporation (the
         "Corporate  General  Partner"),  James M.  Seneff,  Jr.  and  Robert A.
         Bourne.  Mr.  Seneff and Mr.  Bourne are also 50%  shareholders  of the
         Corporate General Partner. The general partners have responsibility for
         managing the day-to-day operations of the Partnership.

         Real  Estate  and  Lease  Accounting  -  The  Partnership  records  the
         acquisitions of real estate properties at cost,  including  acquisition
         and closing costs.  Real estate  properties are leased to third parties
         generally  on a  triple-net  basis,  whereby  the  tenant is  generally
         responsible  for  all  operating  expenses  relating  to the  property,
         including property taxes,  insurance,  maintenance and repairs.  During
         the years ended December 31, 2003,  2002, and 2001 tenants paid, or are
         expected  to  pay,   directly  to  real   estate   taxing   authorities
         approximately  $259,700,  $274,800  and  $264,900,   respectively,   in
         estimated  real  estate  taxes in  accordance  with the  terms of their
         leases.

         The leases of the  Partnership  provide for base minimum  annual rental
         payments payable in monthly installments.  In addition,  certain leases
         provide for  contingent  rental  revenues  based on the tenants'  gross
         sales in  excess  of a  specified  threshold.  The  Partnership  defers
         recognition  of  the  contingent  rental  revenues  until  the  defined
         thresholds  are met.  The leases  are  accounted  for using  either the
         operating or the direct financing methods.

         Operating  method - Property  leases  accounted for using the operating
         method are  recorded  at cost,  revenue is  recognized  as rentals  are
         earned and depreciation is charged to operations as incurred. Buildings
         are depreciated on the straight-line method over their estimated useful
         lives of 30 years.  When scheduled  rentals vary during the lease term,
         income  is  recognized  on a  straight-line  basis so as to  produce  a
         constant  periodic rent over the lease term  commencing on the date the
         property is placed in service.

         Direct  financing  method -  Leases  accounted  for  using  the  direct
         financing  method are  recorded at their net  investment  (which at the
         inception  of the lease  generally  represents  the cost of the asset).
         Unearned  income is  deferred  and  amortized  to income over the lease
         terms so as to  produce  a  constant  periodic  rate of  return  on the
         Partnership's  net investment in the leases.  For the leases classified
         as direct  financing  leases,  the  building  portions of the  property
         leases are  accounted  for as direct  financing  leases  while the land
         portion of these leases are operating leases.

         Accrued  rental  income  represents  the  aggregate  amount  of  income
         recognized  on a  straight-line  basis in  excess of  scheduled  rental
         payments to date.

         Substantially all leases are for 10 to 20 years and provide for minimum
         and contingent  rentals.  The lease options  generally allow tenants to
         renew the leases for two to five successive  five-year  periods subject
         to the same terms and conditions as the initial lease. Most leases also
         allow the tenant to purchase  the property at fair market value after a
         specified portion of the lease has elapsed.
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


1.       Significant Accounting Policies - Continued

         When  the  properties  are  sold,  the  related  cost  and  accumulated
         depreciation  for operating  leases and the net  investment  for direct
         financing leases,  plus any accrued rental income, are removed from the
         accounts and gains or losses from sales are  reflected  in income.  The
         general  partners of the Partnership  review  properties for impairment
         whenever events or changes in circumstances  indicate that the carrying
         amount of the assets may not be  recoverable  through  operations.  The
         general partners  determine whether an impairment in value has occurred
         by comparing the estimated future  undiscounted  cash flows,  including
         the  residual  value of the  property,  with the  carrying  cost of the
         individual  property.  If an impairment  is  indicated,  the assets are
         adjusted to their fair value.

         When the  collection  of amounts  recorded as rental or other income is
         considered  to be  doubtful,  a  provision  is  made  to  increase  the
         allowance for doubtful accounts. If amounts are subsequently determined
         to be  uncollectible,  the  corresponding  receivable and allowance for
         doubtful accounts are decreased accordingly.

         Investment in Joint Ventures - The  Partnership  accounts for its 83.3%
         interest  in San Antonio  #849 Joint  Venture  using the  consolidation
         method.   Minority  interest  represents  the  minority  joint  venture
         partner's  proportionate  share  of the  equity  in  the  Partnership's
         consolidated joint venture. All significant  intercompany  accounts and
         transactions have been eliminated.

         The  Partnership's  investments in CNL Restaurant  Investments  II, Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint  Venture,  and  TGIF  Pittsburgh  Joint  Venture,  CNL VII & XVII
         Lincoln Joint Venture and CNL VII, XV Columbus Joint Venture, Arlington
         Joint Venture and a property in Smithfield,  North Carolina, a property
         in Miami, Florida, a property in Montgomery, Alabama, and a property in
         Colorado  Springs,  Colorado,  for which each of the four properties is
         held as tenants-in-common  with affiliates of the general partners, are
         accounted  for  using  the  equity  method  since  each  joint  venture
         agreement  requires  the consent of all  partners on all key  decisions
         affecting the operations of the underlying property.

         Cash and Cash Equivalents - The Partnership considers all highly liquid
         investments  with a maturity of three months or less when  purchased to
         be cash  equivalents.  Cash  and cash  equivalents  consist  of  demand
         deposits at commercial  banks and money market funds.  Cash equivalents
         are stated at cost plus accrued  interest,  which  approximates  market
         value.

         Cash  accounts  maintained  on  behalf  of the  Partnership  in  demand
         deposits  at  commercial  banks  and  money  market  funds  may  exceed
         federally insured levels;  however, the Partnership has not experienced
         any losses in such accounts.

         Income Taxes - Under  Section 701 of the  Internal  Revenue  Code,  all
         income,  expenses and tax credit items flow through to the partners for
         tax  purposes.  Therefore,  no  provision  for federal  income taxes is
         provided in the accompanying  financial statements.  The Partnership is
         subject  to   certain   state   taxes  on  its  income  and   property.
         Additionally,  for tax  purposes,  syndication  costs are  included  in
         Partnership equity and in the basis of each partner's  investment.  For
         financial reporting purposes syndication costs represent a reduction of
         Partnership  equity  and a  reduction  in the  basis of each  partner's
         investment.

         Rents Paid in  Advance - Rents  paid in  advance by lessees  for future
         periods are deferred upon receipt and are recognized as revenues during
         the period in which the rental income is earned.
<PAGE>
                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


1.       Significant Accounting Policies - Continued

         Use of Estimates - The general  partners of the Partnership have made a
         number of estimates and assumptions relating to the reporting of assets
         and liabilities and the disclosure of contingent assets and liabilities
         to prepare these  financial  statements in  conformity  with  generally
         accepted  accounting  principles.  The more significant areas requiring
         the use of  management  estimates  relate to the allowance for doubtful
         accounts  and future  cash flows  associated  with  long-lived  assets.
         Actual results could differ from those estimates.

         Reclassification   -  Certain  items  in  the  prior  years'  financial
         statements  have been  reclassified  to conform  to 2003  presentation.
         These  reclassification  had no effect on total partners' capital,  net
         income or cash flows.

         Statement of Financial Accounting Standards No. 144 - Effective January
         1, 2002,  the  Partnership  adopted  Statement of Financial  Accounting
         Standards  No.  144  "Accounting  for the  Impairment  or  Disposal  of
         Long-Lived  Assets." This statement requires that a long-lived asset be
         tested for  recoverability  whenever events or changes in circumstances
         indicate that its carrying amount may not be recoverable.  The carrying
         amount of a long-lived  asset is not  recoverable if it exceeds the sum
         of the  undiscounted  cash flows  expected  to result  from the use and
         eventual  disposition  of the  asset.  The  assessment  is based on the
         carrying   amount  of  the   asset  at  the  date  it  is  tested   for
         recoverability.  An  impairment  loss is  recognized  when the carrying
         amount of a long-lived  asset exceeds its fair value.  If an impairment
         is recognized,  the adjusted  carrying amount of a long-lived  asset is
         its new cost basis.  The  statement  also  requires that the results of
         operations of a component of an entity that either has been disposed of
         or is  classified  as held  for  sale  be  reported  as a  discontinued
         operation if the  disposal  activity was  initiated  subsequent  to the
         adoption of the Standard.

         FASB Interpretation No. 46 - In January 2003, the Financial  Accounting
         Standards Board ("FASB") issued FASB  Interpretation No. 46 ("FIN 46"),
         "Consolidation  of  Variable  Interest  Entities"  to  expand  upon and
         strengthen  existing  accounting guidance that addresses when a company
         should include the assets, liabilities and activities of another entity
         in  its  financial  statements.   To  improve  financial  reporting  by
         companies  involved with variable  interest  entities,  FIN 46 requires
         that a variable  interest  entity be  consolidated by a company if that
         company  is  subject  to a  majority  risk of loss  from  the  variable
         interest  entity's  activities or entitled to receive a majority of the
         entity's residual returns or both. Prior to FIN 46, a company generally
         included another entity in its consolidated  financial  statements only
         if it controlled the entity through voting interests. In December 2003,
         the FASB issued FASB  Interpretation  No. 46R ("FIN  46R"),  to clarify
         some of the provisions of FIN 46. Under FIN 46R, special effective date
         provisions  apply to entities that have fully or partially  applied FIN
         46 prior to issuance of FIN 46R.  Otherwise,  application of FIN 46R is
         required in financial statements of public entities that have interests
         in structures that are commonly referred to as special-purpose entities
         for periods  ending  after  December 15,  2003.  Application  by public
         entities,  other than small  business  issuers,  for all other types of
         variable  interest  entities is required in  financial  statements  for
         periods ending after March 15, 2004. The  Partnership  did not fully or
         partially  apply FIN 46 prior to the  issuance  of FIN 46R.  Also,  the
         Partnership does not have interests in structures  commonly referred to
         as  special-purpose  entities.  Therefore,  application  of FIN  46R is
         required in the Partnership's  financial  statements for periods ending
         after March 15, 2004.  The general  partners  believe  adoption of this
         standard may result in either  consolidation  or additional  disclosure
         requirements of the Partnership's  unconsolidated joint ventures, which
         are currently  accounted  for under the equity  method.  However,  such
         consolidation is not expected to significantly impact the Partnership's
         results of operations.

<PAGE>

                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


2.       Real Estate Properties with Operating Leases

         Real estate properties with operating leases consisted of the following
         at December 31:
<TABLE>

                                                                        2003                 2002
                                                                  -----------------    -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                 Land                                                 $  6,756,854         $  6,756,854
                 Buildings                                               6,714,927            6,714,927
                                                                  ----------------      ----------------
                                                                        13,471,781           13,471,781

                 Less accumulated depreciation                          (2,586,029 )         (2,362,193 )
                                                                  -----------------    -----------------

                                                                      $ 10,885,752         $ 11,109,588
                                                                  =================    =================
</TABLE>

         The following is a schedule of the future  minimum lease payments to be
         received on noncancellable operating leases at December 31, 2003:

                        2004                        1,512,739
                        2005                        1,210,453
                        2006                        1,005,436
                        2007                          984,805
                        2008                          884,882
                        Thereafter                  3,697,918
                                              ----------------
                                                 $  9,296,233
                                              ================

3.       Net Investment in Direct Financing Leases

         The  following  lists the  components  of the net  investment in direct
         financing leases at December 31:
<TABLE>

                                                                               2003                 2002
                                                                         -----------------    -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          Minimum lease payments receivable                                 $   2,821,213        $   3,223,555
          Estimated residual values                                               768,233              768,233
          Less unearned income                                                 (1,367,911 )         (1,647,471 )
                                                                        -----------------    -----------------

          Net investment in direct financing leases                         $   2,221,535        $   2,344,317
                                                                         =================    =================
</TABLE>

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at December 31, 2003:

                             2004                           402,342
                             2005                           402,342
                             2006                           402,342
                             2007                           402,342
                             2008                           402,342
                             Thereafter                     809,503
                                                      --------------

                                                      $   2,821,213
                                                     ===============


<PAGE>

                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


4.       Investment in Joint Ventures

         The Partnership has an 18% interest,  a 4.79% interest, a 79% interest,
         a 56% interest,  a 36.88% interest,  a 14% interest,  a 68.75% interest
         and a 79%  interest  in  the  profits  and  losses  of  CNL  Restaurant
         Investments  II, Des Moines Real Estate Joint  Venture,  CNL  Mansfield
         Joint Venture, Duluth Joint Venture, TGIF Pittsburgh Joint Venture, CNL
         VII & XVII Lincoln Joint  Venture,  CNL VII, XV Columbus  Joint Venture
         and Arlington Joint Venture,  respectively.  The remaining interests in
         these joint  ventures are held by affiliates of the  Partnership  which
         have the same general partners. The Partnership also has a 53% interest
         in a property in Smithfield,  North Carolina,  with an affiliate of the
         general partners, as tenants-in-common, a 35.64% interest in a property
         in  Miami,  Florida,  with  affiliates  of  the  general  partners,  as
         tenants-in-common, a 71% interest in a property in Montgomery, Alabama,
         with an affiliate of the general partners,  as tenants-in-common  and a
         43%  interest  in a property  in Colorado  Springs,  Colorado,  with an
         affiliate  of  the  general  partners,  as  tenants-in-common.  Amounts
         relating  to  its  investment  are  included  in  investment  in  joint
         ventures.

         In June 2002, CNL Restaurant  Investments  II, in which the Partnership
         owns an 18% interest, sold its property in Columbus, Ohio to the tenant
         for a sales price of  approximately  $1,219,600  and received net sales
         proceeds of approximately $1,215,700,  resulting in a gain of $448,300.
         In  addition,  in June 2002,  CNL  Restaurant  Investments  II sold its
         property  in  Pontiac,  Michigan  to the  tenant  for a sales  price of
         $725,000  and received net sales  proceeds of  approximately  $722,600,
         resulting in a loss of $189,800.  The tenants exercised their option to
         purchase the properties under the terms of their respective leases. The
         Partnership received $129,888 as a return of capital from the net sales
         proceeds,   and  used  approximately   $63,900  to  pay  an  additional
         contribution to CNL Mansfield Joint Venture. The joint venture used the
         proceeds  from the sale of the property in Columbus,  Ohio to acquire a
         property in Dallas,  Texas at an approximate  cost of  $1,147,400.  The
         joint venture  acquired this property from CNL Funding  2001-A,  LP, an
         affiliate of the general partners.

         In addition,  in June 2002, the  Partnership  used a portion of the net
         sales  proceeds from the 2001 sale of its  properties  in  Saddlebrook,
         Gainesville  and Daytona  Beach,  Florida to enter into a joint venture
         arrangement,  Arlington Joint Venture,  with CNL Income Fund XVI, Ltd.,
         an affiliate of the general partners,  to hold one restaurant property.
         The joint venture  acquired this property from CNL Funding 2001-A,  LP,
         an affiliate of the general partners.

         In May 2002, CNL Mansfield Joint Venture, in which the Partnership owns
         a 79% interest,  entered into  negotiations with the tenant to sell the
         property  in  Mansfield,   Texas.  As  a  result,   the  joint  venture
         reclassified  the  assets  relating  to this  property  from  land  and
         building on operating  leases and accrued  rental income to real estate
         held for sale.  The  property was recorded at the lower of its carrying
         amount or fair value less cost to sell. In addition,  the joint venture
         stopped   recording   depreciation   and  accrued  rental  income  upon
         identifying  the property as held for sale.  In August 2002,  the joint
         venture sold the property to the tenant for a sales price of $1,045,000
         and received net sales proceeds of approximately $1,011,500,  resulting
         in a gain  of  approximately  $269,800.  The  joint  venture  used  the
         proceeds  from the sale of the  property  in  Mansfield,  Texas  and an
         additional  contribution  of  approximately  $63,900  received from the
         Partnership,  as described  above,  to acquire a property in Arlington,
         Texas from CNL Net Lease  Investors,  L.P., at an  approximate  cost of
         $1,089,900.  CNL Net  Lease  Investors,  L.P.  is an  affiliate  of the
         general partners.
<PAGE>

                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


4.       Investment in Joint Ventures - Continued

         In  October  2003,  CNL  Restaurant   Investments   II,  in  which  the
         Partnership  owns an 18%  interest,  entered into  negotiations  with a
         third party to sell the  property in San Antonio,  Texas.  As a result,
         the joint  venture  reclassified  the assets  relating to this property
         from land and  building  on  operating  leases to real  estate held for
         sale. The property was recorded at the lower of its carrying  amount or
         fair value less cost to sell. In addition,  the joint  venture  stopped
         recording depreciation upon identifying the property as held for sale.

         The  financial  results  for the  Columbus,  Ohio;  Pontiac,  Michigan;
         Mansfield,  Texas and San Antonio,  Texas  properties  are reflected as
         discontinued   operations  in  the  condensed   financial   information
         presented below.

         As of  December  31,  2003,  CNL  Restaurant  Investments  II owns five
         properties.  Des Moines Joint  Venture,  CNL Mansfield  Joint  Venture,
         Duluth Joint Venture,  TGIF  Pittsburgh  Joint Venture,  CNL VII & XVII
         Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture and Arlington
         Joint Venture each own one property.  In addition,  the Partnership and
         affiliates,  in four separate tenancy in common arrangements,  each own
         one property.

         The following presents the combined,  condensed  financial  information
         for  all  of  the  Partnership's  investments  in  joint  ventures  and
         properties held as tenants-in-common with affiliates at:
<TABLE>

                                                                                  December 31,
                                                                         2003                        2002
                                                                  --------------------         -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


          Real estate properties with operating leases,
          net                                                          $   18,124,486             $  18,531,334
          Net investment in direct financing leases                    $    1,719,424                 1,743,852
          Real estate held for sale                                           724,380                   739,968
          Cash                                                                 89,783                    52,263
          Receivables                                                              --                     2,445
          Accrued rental income                                               539,816                   424,858
          Other assets                                                             --                       512
          Liabilities                                                         172,186                   149,219
          Partners' capital                                                21,025,703                21,346,013

</TABLE>
<PAGE>



                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


4.       Investment in Joint Ventures - Continued

<TABLE>

                                                                          Years ended December 31,
                                                                 2003              2002             2001
                                                            ---------------   ---------------  ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          Continuing Operations:
            Revenues                                          $  2,395,721       $ 2,193,739     $  2,016,556
            Expenses                                              (422,734 )        (430,185 )       (341,214 )
            Provision for write-down of assets                          --           (65,755 )             --
                                                            ---------------   ---------------  ---------------
                   Income from continuing operations             1,972,987         1,697,799        1,675,342
                                                            ---------------   ---------------  ---------------

          Discontinued Operations:
            Revenues                                                95,285           262,492          296,225
            Expenses                                               (15,988 )         (46,760 )        (65,841 )
            Gain on disposal of assets                                  --           528,296               --
                                                            ---------------   ---------------  ---------------
            Income from discontinued operations                     79,297           744,028          230,384
                                                            ---------------   ---------------  ---------------
          Net income                                         $   2,052,284       $ 2,441,827     $  1,905,726
                                                            ===============   ===============  ===============

</TABLE>

         The Partnership  recognized income totaling $863,472,  $1,027,311,  and
         $717,096  for the  years  ended  December  31,  2003,  2002,  and 2001,
         respectively,  from these joint  ventures  and the  properties  held as
         tenants in common with affiliates.

5.       Allocations and Distributions

         From inception through December 31, 1999, all net income and net losses
         of the  Partnership,  excluding  gains  and  losses  from  the  sale of
         properties,  were allocated 99 percent to the limited  partners and one
         percent to the general  partners.  From inception  through December 31,
         1999,  distributions  of net cash  flow  were  made 99  percent  to the
         limited partners and one percent to the general partners.  However, the
         one percent of net cash flow to be distributed to the general  partners
         was  subordinated  to receipt by the limited  partners of an aggregate,
         ten percent, cumulative,  noncompounded annual return on their adjusted
         capital contributions (the "10% Preferred Return").

         From inception through December 31, 1999, generally, net sales proceeds
         from the sale of properties not in liquidation of the  Partnership,  to
         the extent distributed,  were distributed first to the limited partners
         in an  amount  sufficient  to  provide  them with  their 10%  Preferred
         Return,  plus the return of their adjusted capital  contributions.  The
         general partners then received,  to the extent previously  subordinated
         and unpaid,  a one percent  interest in all prior  distributions of net
         cash flow and a return of their  capital  contributions.  Any remaining
         sales proceeds were  distributed 95 percent to the limited partners and
         five  percent  to the  general  partners.  Any gain  from the sale of a
         property  not  in  liquidation  of the  Partnership  was,  in  general,
         allocated in the same manner as net sales  proceeds are  distributable.
         Any  loss  from  the  sale  of a  property  not in  liquidation  of the
         Partnership  was, in general,  allocated first, on a pro rata basis, to
         partners  with  positive  balances  in  their  capital  accounts;   and
         thereafter,  95 percent to the limited partners and five percent to the
         general partners.
<PAGE>

                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


5.       Allocations and Distributions - Continued

         Generally,  net sales  proceeds from a liquidating  sale of properties,
         will be used in the following order: (i) first to pay and discharge all
         of  the  Partnership's   liabilities  to  creditors,  (ii)  second,  to
         establish  reserves that may be deemed necessary for any anticipated or
         unforeseen liabilities or obligations of the Partnership,  (iii) third,
         to pay all of the Partnership's liabilities, if any, to the general and
         limited partners,  (iv) fourth,  after allocations of net income, gains
         and/or  losses,  to distribute  to the partners  with positive  capital
         accounts  balances,  in  proportion  to such  balances,  up to  amounts
         sufficient  to  reduce  such  positive   balances  to  zero,   and  (v)
         thereafter, any funds remaining shall then be distributed 95 percent to
         the limited partners and five percent to the general partners.

         Effective  January  2000,  the general  partners  waived their right to
         receive  future  distributions  from the  Partnership,  including  both
         distributions  of operating cash flow and  distributions of liquidation
         proceeds,   to  the  extent   that  the   cumulative   amount  of  such
         distributions would exceed the balance in the general partners' capital
         account as of December  31,  1999.  Accordingly,  for years  commencing
         January  1,  2000 and  after,  the  Partnership's  net  income  will be
         allocated entirely among the limited partners.  However,  if losses are
         allocated to the general  partners in a year, an amount of income equal
         to the sum of such losses may be allocated  to the general  partners in
         succeeding years. Accordingly,  the general partners were not allocated
         any net income and did not  receive any  distribution  during the years
         ended December 31, 2003, 2002 and 2001.

         During each of the years ended  December 31, 2003,  2002, and 2001, the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,700,000.  No distributions have been made to the general partners to
         date.

<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


6.       Income Taxes

         The following is a reconciliation of net income for financial reporting
         purposes to net income for federal  income tax  purposes  for the years
         ended December 31:
<TABLE>

                                                                   2003               2002             2001
                                                               -------------      -------------     ------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Net income for financial reporting purposes          $ 2,228,667         $2,343,522      $ 2,215,570

           Effect of timing differences relating to
               depreciation                                         (20,814 )          (17,790 )        (14,382 )

           Effect of timing differences relating to
               gains/losses on property sales                            --                 --          109,317

           Provision for loss on assets                                  --                 --          279,862

           Direct financing leases recorded as operating
               leases for tax reporting purposes                    128,479            108,647           95,360

           Effect of timing differences relating to equity
               in earnings of unconsolidated joint ventures         (30,536 )         (318,050 )        (59,325 )

           Accrued rental income                                     23,821             12,040           14,159

           Rents paid in advance                                     31,891              4,628           17,901

           Effect  of   timing   differences   relating   to
               minority interest                                       (728 )           12,630             (728 )

           Effect  of   timing   differences   relating   to
               allowance for doubtful accounts                           --                 --             (504 )

           Other                                                       (294 )               --               --
                                                               -------------      -------------     ------------

           Net income for federal income tax purposes           $ 2,360,486         $2,145,627      $ 2,657,230
                                                               =============      =============     ============
</TABLE>
<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


7.       Related Party Transactions

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders of CNL Holdings,  Inc. The other individual
         general partner, Robert A. Bourne, serves as President and Treasurer of
         CNL Financial  Group,  Inc., a wholly owned subsidiary of CNL Holdings,
         Inc. CNL APF Partners,  LP, a wholly owned subsidiary of CNL Restaurant
         Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
         served as the  Partnership's  advisor  until  January 1, 2002,  when it
         assigned its rights and obligations under a management agreement to RAI
         Restaurants,  Inc.  (the  "Advisor").  The  Advisor  is a wholly  owned
         subsidiary  of  CNL  Restaurant   Properties,   Inc.  ("CNL-RP").   The
         individual general partners are stockholders and directors of CNL-RP.

         In connection therewith,  the Partnership has agreed to pay the Advisor
         an annual, noncumulative, subordinated management fee of one percent of
         the  sum  of  gross  revenues  from  properties  wholly  owned  by  the
         Partnership  and the  Partnership's  allocable  share of gross revenues
         from joint ventures and the properties held as  tenants-in-common  with
         affiliates,  but not in  excess  of  competitive  fees  for  comparable
         services.  These fees will be incurred  and will be payable  only after
         the limited  partners  receive their 10% Preferred  Return.  Due to the
         fact that these fees are  noncumulative,  if the limited  partners have
         not received  their 10%  Preferred  Return in any  particular  year, no
         management  fee will be due or payable  for such  year.  As a result of
         such threshold, no management fees were incurred during the years ended
         December 31, 2003, 2002, and 2001.

         The Advisor is also entitled to receive a deferred,  subordinated  real
         estate disposition fee, payable upon the sale of one or more properties
         based on the lesser of one-half of a competitive real estate commission
         or  three  percent  of the  sales  price  if  the  Advisor  provides  a
         substantial amount of services in connection with the sale. However, if
         the net sales  proceeds are  reinvested in a replacement  property,  no
         such  real  estate   disposition  fees  will  be  incurred  until  such
         replacement   property  is  sold  and  the  net  sales   proceeds   are
         distributed.  The  payment  of  the  real  estate  disposition  fee  is
         subordinated to the receipt by the limited  partners of their aggregate
         10% Preferred  Return,  plus their adjusted capital  contributions.  No
         deferred,  subordinated real estate  disposition fees were incurred for
         the years ended December 31, 2003, 2002, and 2001.

         During  the  years  ended  December  31,  2003,  2002,  and  2001,  the
         Partnership's  advisor  and  its  affiliates  provided  accounting  and
         administrative  services to the Partnership.  The Partnership  incurred
         $136,203, $166,302, and $170,123 for the years ended December 31, 2003,
         2002, and 2001, respectively, for such services.

         In June 2002, the Partnership  and CNL Income Fund XVI, Ltd.  through a
         joint  venture  arrangement,   Arlington  Joint  Venture,   acquired  a
         property,  in  Arlington,  Texas,  from CNL Funding  2001-A,  LP, for a
         purchase price of approximately  $1,003,600. In addition, in June 2002,
         CNL  Restaurant  Investments  II Joint  Venture  acquired a property in
         Dallas,  Texas from CNL  Funding  2001-A,  LP for a  purchase  price of
         approximately $1,147,400. CNL Funding 2001-A, LP is an affiliate of the
         general partners.  CNL Funding 2001-A, LP had purchased and temporarily
         held title to the properties in order to facilitate the  acquisition of
         the  properties by the joint  ventures.  The purchase price paid by the
         joint ventures represented the costs incurred by CNL Funding 2001-A, LP
         to acquire and carry the properties.

<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001

7.       Related Party Transactions - Continued

         In September 2002, CNL Mansfield  Joint Venture  acquired a property in
         Arlington,  Texas from CNL Net Lease  Investors,  L.P.  ("NLI"),  at an
         approximate  cost of  $1,089,900.  During 2002,  and prior to the joint
         venture's  acquisition of this property,  CNL Financial LP Holding,  LP
         ("CFN") and CNL Net Lease Investors GP Corp. ("GP Corp")  purchased the
         limited   partner's   interest   and   general   partner's    interest,
         respectively,  of NLI. Prior to this  transaction,  an affiliate of the
         Partnership's  general partners owned a 0.1% interest in NLI and served
         as a general  partner of NLI.  The  original  general  partners  of NLI
         waived their rights to benefit from this  transaction.  The acquisition
         price paid by CFN for the limited  partner's  interest was based on the
         portfolio acquisition price. The joint venture acquired the property in
         Arlington,  Texas  at  CFN's  cost  and  did  not  pay  any  additional
         compensation  to CFN for the  acquisition  of the  property.  Each  CNL
         entity is an affiliate of the Partnership's general partners.

         The  amounts  due to related  parties  totaled  $11,333  and $13,151 at
         December 31, 2003 and 2002, respectively.

8.       Concentration of Credit Risk

         The  following  schedule  presents  total rental  revenues and mortgage
         interest  income  from  individual  lessees,  or  affiliated  groups of
         lessees,  each representing  more than 10% of the  Partnership's  total
         rental   revenues  and  mortgage   interest   income   (including   the
         Partnership's  share of total rental  revenues from the  unconsolidated
         joint  ventures  and  the  properties  held as  tenants-in-common  with
         affiliates  of the  general  partners)  for  each  of the  years  ended
         December 31:

<TABLE>
                                                                2003              2002               2001
                                                            -------------     -------------      -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                  Golden Corral Corporation                    $ 789,309         $ 766,789          $ 763,975
                  Jack in the Box Inc.                           383,219           366,284            349,985
                  Waving Leaves, Inc.                                N/A               N/A            283,072

</TABLE>

         In addition,  the following schedule presents total rental revenues and
         mortgage  interest  income  from  individual  restaurant  chains,  each
         representing more than 10% of the  Partnership's  total rental revenues
         and mortgage  interest  income  (including the  Partnership's  share of
         total rental  revenues from the  unconsolidated  joint ventures and the
         properties held as  tenants-in-common  with affiliates) for each of the
         years ended December 31:

<TABLE>
                                                                 2003              2002               2001
                                                             -------------     --------------     -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


             Golden Corral Buffet and Grill                     $ 789,309          $ 766,789         $ 763,975
             Hardees                                              403,536            415,447           426,841
             Jack in the Box                                      383,219            366,284           349,985
             Burger King                                              N/A                N/A           305,348

</TABLE>

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,  the restaurant chain did not represent more than 10% of the
         Partnership's total rental revenues and mortgage interest income.

         Although the Partnership's properties have some geographic diversity in
         the United States and the  Partnership's  lessees  operate a variety of
         restaurant  concepts,   default  by  any  lessee  or  restaurant  chain
         contributing  more  than  10%  of  the   Partnership's   revenues  will
         significantly  impact the results of operations of the  Partnership  if
         the  Partnership  is not able to re-lease  the  properties  in a timely
         manner.


<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002, and 2001


9.       Selected Quarterly Financial Data

         The following table presents  selected  unaudited  quarterly  financial
         data for each full quarter during the years ended December 31, 2003 and
         2002:
<TABLE>

                2003 Quarter             First          Second          Third          Fourth             Year
         ---------------------------- ------------  ---------------  ------------  ---------------   ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


         Revenues                        $443,696       $  444,089   $   468,591    $     534,516     $   1,890,892
         Equity in earnings of
              unconsolidated
              joint ventures              213,573          217,242       214,710          217,947           863,472
         Net Income                       492,599          539,156       556,656          640,256         2,228,667

         Income per limited
              partner unit               $  0.016        $   0.018      $  0.019        $   0.021         $   0.074



                2002 Quarter             First          Second          Third          Fourth             Year
         ---------------------------- ------------  ---------------  ------------  ---------------   ---------------

         Revenues                        $455,426       $  426,613     $ 486,651       $  517,699       $ 1,886,389
         Equity in earnings of
              unconsolidated
              joint ventures              155,988          244,877       426,399          200,047         1,027,311
         Net Income                       450,360          534,578       757,687          600,897         2,343,522

         Income per limited
              partner unit               $  0.015        $   0.018      $  0.025        $   0.020         $   0.078

</TABLE>
<PAGE>





Item 9.  Changes in and  Disagreements  with  Accountants  on Accounting  and
         Financial Disclosure

         None


Item 9A.  Controls and Procedures

         The  General  Partners  maintain  a  set  of  disclosure  controls  and
procedures  designed to ensure that information  required to be disclosed in the
Partnership's  filings  under the  Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange  Commission's  rules and forms. The principal  executive
and  financial  officers of the  corporate  general  partner have  evaluated the
Partnership's  disclosure  controls and  procedures  as of the end of the period
covered  by this  Annual  Report  on Form  10-K and have  determined  that  such
disclosure controls and procedures are effective.

         There was no change in internal  control over financial  reporting that
occurred during the most recent fiscal quarter that has materially affected,  or
is  reasonably  likely to materially  affect,  internal  control over  financial
reporting.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

         The General Partners of the Registrant are James M. Seneff, Jr., Robert
A.  Bourne  and CNL  Realty  Corporation,  a Florida  corporation.  The  General
Partners  manage  and  control  the  Partnership's   affairs  and  have  general
responsibility   and  the  ultimate  authority  in  all  matters  affecting  the
Partnership's  business.  The  Partnership  has  available  to it the  services,
personnel and  experience of CNL-RP,  CCM, CNL Financial  Group,  Inc. and their
affiliates, all of which are affiliates of the General Partners.

         James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the  acquisition,  development,  and  management  of real estate  projects  and,
directly or through an  affiliated  entity,  has served as a general  partner or
co-venturer in over 100 real estate  ventures.  These ventures have involved the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public,  unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief  Executive  Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and  Chief  Executive  Officer  of  CNL  Fund  Advisors,   Inc.,   formerly  the
Partnership's  advisor,  from  its  inception  in 1990  until it  merged  with a
wholly-owned  subsidiary  of CNL-RP in  September  1999,  and in June 2000,  was
re-elected  to those  positions of CNL Fund  Advisors,  Inc. CNL Fund  Advisors,
Inc.,  formerly CNL  Institutional  Advisors,  Inc., is a registered  investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director,  Chairman of the Board and Chief Executive  Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries,  of CNL Real Estate
Services,  Inc.,  CNL Capital  Markets,  Inc.,  CNL  Investment  Company and CNL
Securities  Corp.,  all of which are  engaged  in the  business  of real  estate
finance.  Mr.  Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality  Properties,  Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality  Properties,  Inc. from
its inception in 1997 until 2003 and served as Co-Chief  Executive  Officer from
February 2003 until May 1, 2003.  Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997.  Mr. Seneff also served as Chief  Executive  Officer from
its inception in 1997 through  February 2003,  and currently  serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman  of the Board of CNL  Retirement  Corp.  since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate  investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty,  Inc., a public real estate investment
trust  that is listed on the New York Stock  Exchange,  since 1992 and served as
Chief Executive  Officer of Commercial Net Lease Realty,  Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director,  Chairman of the Board,  and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment  Company  since  1990;  and  CNL  Institutional  Advisors,   Inc.,  a
registered  investment  advisor for pension  plans,  since 1990.  Mr. Seneff has
served as Chairman of the Board and Chief  Executive  Officer of CNL  Commercial
Finance,  Inc.  since 2000.  Mr.  Seneff also serves as Chairman of the Board of
CNLBank, an independent,  state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment  Advisory Council,  which recommends
to the Florida Board of Administration  investments for various Florida employee
retirement  funds.  The Florida  Board of  Administration,  Florida's  principal
investment advisory and money management agency,  oversees the investment of the
Florida  state  retirement  plan.  Mr.  Seneff  received  his degree in Business
Administration from Florida State University in 1968.

         Robert A.  Bourne,  age 56. Mr.  Bourne has  participated  as a general
partner  or  co-venturer  in over  100  real  estate  ventures  involved  in the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels, and other real estate. Mr. Bourne has
served as a Director and Vice  Chairman of the Board of CNL-RP  since 1994.  Mr.
Bourne also served as President of CNL-RP from 1994  through  February  1999 and
served as Treasurer  from  February  1999 through  August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including,  President from 1994 through  September  1997, and Director from 1994
through  August  1999.  Mr.  Bourne  serves as  President  and  Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director,  Vice Chairman of the Board
and  Treasurer  and from  1997  until  June  2002  served  as  President  of CNL
Hospitality  Properties,  Inc. and as Director,  President  and Treasurer of CNL
Hospitality  Corp.  Mr.  Bourne  also serves as Director  and  Treasurer  of CNL
Retirement  Properties,  Inc.  and as Director and  Treasurer of CNL  Retirement
Corp. Mr. Bourne serves as a Director of CNLBank.  Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer  from February  1996 through  1997,  and President  from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc.  including,   CNL  Investment   Company,   CNL  Securities  Corp.  and  CNL
Institutional  Advisors,  Inc. Mr. Bourne began his career as a certified public
accountant  employed by Coopers & Lybrand,  Certified Public  Accountants,  from
1971 through  1978,  where he attained the position of Tax Manager in 1975.  Mr.
Bourne  graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.

         Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief  Executive  Officer of CNL-RP since September
2003.  Mr.  McWilliams  served as  Co-Chief  Executive  Officer  of CNL-RP  from
December 2000 through  September 2003 and served as Chief Executive Officer from
September 1999 through  December 2000. Mr.  McWilliams  also served as President
and Chief  Executive  Officer of CNL  Franchise  Network  Corp.,  a wholly owned
subsidiary  of CNL-RP  since  August 2002 and served as President of CNL-RP from
February 1999 until  September  1999 and as Executive  Vice  President of CNL-RP
from 1997 through  February  1999.  Mr.  McWilliams  served as an Executive Vice
President of CNL  Financial  Group,  Inc. from the time he joined the company in
April 1997 until September 1999. Mr.  McWilliams served as President of CNL Fund
Advisors,  Inc. and CNL Financial  Services,  Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities  by  wholly  owned  subsidiaries  of  CNL-RP in  September  1999.  From
September 1983 through March 1997, Mr.  McWilliams was employed by Merrill Lynch
& Co. The  majority of his career at Merrill  Lynch & Co. was in the  Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical  Engineering from Princeton University in 1977 and a Master
of Business  Administration  degree  with a  concentration  in finance  from the
University of Chicago in 1983.

         Steven  D.  Shackelford,  age  40.  Mr.  Shackelford  was  promoted  to
Executive  Vice  President  and Chief  Operating  Officer of CNL-RP in September
2003. Mr.  Shackelford has also served as Chief Financial  Officer since January
1997.  He served as Senior Vice  President  of CNL-RP from  January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since  September  1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September  1999.  From March 1995 to July 1996, Mr.  Shackelford was a senior
manager in the national office of Price  Waterhouse LLP where he was responsible
for advising  foreign  clients  seeking to raise capital and a public listing in
the United  States.  From  August  1992 to March  1995,  he was a manager in the
Paris,  France  office  of  Price  Waterhouse,  serving  several  multi-national
clients.  Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of  Arts  degree  in  Accounting,   with  honors,   and  a  Master  of  Business
Administration  degree from Florida State  University and is a certified  public
accountant.

         Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide  strategic  advisory  services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates  since January 2003. Since November 2001 he has been an
independent  consultant  working  for a  variety  of  operating  and  investment
companies  in the  hospitality  industry.  Until  October  2001,  Mr.  Arasi was
President & Chief Executive  Officer,  and a member of the Board of Directors of
Lodgian,  Inc., a New York Stock  Exchange  traded  company,  one of the largest
independent hotel  owner/operators in North America, with hotel properties under
most brand names  including  Marriott,  Courtyard by Marriott,  Fairfield Inn by
Marriott,  Crowne  Plaza,  Holiday Inn,  Hilton,  and  Radisson.  From June 1997
through  November 2000,  Mr. Arasi was a member of the Management  Committee and
held  several top  operating  positions  with Bass Hotels & Resorts,  one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman  Hotel  Corporation,  Vice  President of Salomon  Brothers,
Inc.,  in New York,  Tokyo and Los Angeles  and held  positions  with  Sheraton,
Westin and HVS  International.  Mr. Arasi  graduated from Cornell  University in
January  1981,  where he received a  Bachelor's  degree in Hotel and  Restaurant
Administration.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the Exchange Act requires the General  Partners,  the
officers of the  corporate  General  Partner,  and persons who own more than ten
percent  of  a  registered  class  of  the   Partnership's   equity   securities
(collectively,  the  "Reporting  Persons"),  to file  reports of  ownership  and
changes in  ownership  on Forms 3, 4 and 5 with the SEC.  Reporting  Persons are
required by SEC regulation to furnish the  Partnership  with copies of all Forms
3, 4 and 5 that they file.

         Based  solely on the  General  Partners'  review of the  copies of such
forms the  Partnership  has  received and written  representations  from certain
Reporting  Persons  that they  were not  required  to file  Forms 5 for the last
fiscal year, the General  Partners  believe that all Reporting  Persons complied
with all filing  requirements  applicable  to them with respect to  transactions
during fiscal 2003.

Code of Business Conduct

         The  Partnership  does not have  employees  and,  accordingly,  has not
adopted a code of business  conduct  applicable  exclusively to the Partnership.
However,  employees of the General Partners or their  affiliates,  including the
individual  General Partners,  are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar  Code of  Business  Conduct  adopted by CNL  Restaurant
Properties,  Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.

Audit Committee Financial Expert

         Due to its organization as a limited partnership,  the Partnership does
not  have  an  audit   committee  that  is  responsible   for   supervising  the
Partnership's  relationship with its independent auditors.  For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal  financial officer of companies with businesses similar to that of
the  Partnership,  Robert  A.  Bourne,  one of the  General  Partners,  has  the
requisite  experience to be considered an "audit committee  financial expert" as
defined  in  the  rules  under  the  Securities  Exchange  Act of  1934,  if the
Partnership  had an audit  committee.  As a General  Partner,  Mr. Bourne is not
independent of the Partnership.


Item 11.  Executive Compensation

         Other than as  described in Item 13, the  Partnership  has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates.  There are no compensatory plans or arrangements  regarding
termination of employment or change of control.


Item 12. Security  Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

         As of March 12,  2004,  no person was known to the  Registrant  to be a
beneficial owner of more than five percent of the Units.

         The following  table sets forth,  as of March 12, 2004,  the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>

                    Title of Class                           Name of Partner                 Percent of Class
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           General Partnership Interests                James M. Seneff, Jr.                           45%
                                                        Robert A. Bourne                               45%
                                                        CNL Realty Corporation                         10%
                                                                                                   --------
                                                                                                      100%
                                                                                                   ========
</TABLE>

         Neither the General  Partners,  nor any of their  affiliates,  owns any
interest in the Registrant, except as noted above.

         The Partnership does not have any equity compensation plans.
<PAGE>

Item 13.  Certain Relationships and Related Transactions

         The  table  below   summarizes  the  types,   recipients,   methods  of
computation and amounts of compensation,  fees and distributions paid or payable
by the  Partnership  to the General  Partners and their  affiliates for the year
ended  December 31, 2003,  exclusive of any  distributions  to which the General
Partners or their  affiliates  may be entitled by reason of their  purchase  and
ownership of Units.

<TABLE>

                                                                                                 Amount Incurred
          Type of Compensation                                                                    For the Year
              and Recipient                          Method of Computation                   Ended December 31, 2003
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Reimbursement     to    affiliates    for     Operating  expenses  are  reimbursed     Accounting    and     administrative
operating expenses                            at the  lower  of cost or 90% of the     services: $136,203
                                              prevailing rate at which  comparable
                                              services  could  have been  obtained
                                              in   the   same   geographic   area.
                                              Affiliates  of the General  Partners
                                              from  time  to  time  incur  certain
                                              operating  expenses on behalf of the
                                              Partnership     for     which    the
                                              Partnership      reimburses      the
                                              affiliates without interest.

Annual,  subordinated  manage-ment fee to     One  percent  of the  sum  of  gross     $ - 0 -
affiliates                                    operating  revenues from  Properties
                                              wholly  owned  by  the   Partnership
                                              plus  the  Partnership's   allocable
                                              share  of  gross  revenues  of joint
                                              ventures  in which  the  Partnership
                                              is a co-venturer  and the Properties
                                              owned     with     affiliates     as
                                              tenants-in-common,  subordinated  to
                                              certain   minimum   returns  to  the
                                              Limited  Partners.   The  management
                                              fee  will  not  exceed   competitive
                                              fees for  comparable  services.  Due
                                              to the  fact  that  these  fees  are
                                              non-cumulative,   if   the   Limited
                                              Partners  have  not  received  their
                                              10%   Preferred    Return   in   any
                                              particular  year, no management fees
                                              will  be due  or  payable  for  such
                                              year.

</TABLE>
<PAGE>

<TABLE>

                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
              and Recipient                          Method of Computation                   Ended December 31, 2003
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Deferred,    subordinated   real   estate     A   deferred,    subordinated   real     $ - 0 -
disposition fee payable to affiliates         estate   disposition   fee,  payable
                                              upon    sale    of   one   or   more
                                              Properties,  in an  amount  equal to
                                              the  lesser  of  (i)  one-half  of a
                                              competitive real estate  commission,
                                              or (ii)  three  percent of the sales
                                              price    of   such    Property    or
                                              Properties.   Payment  of  such  fee
                                              shall be made only if  affiliates of
                                              the  General   Partners   provide  a
                                              substantial  amount of  services  in
                                              connection   with   the  sale  of  a
                                              Property or Properties  and shall be
                                              subordinated   to  certain   minimum
                                              returns  to  the  Limited  Partners.
                                              However,  if the net sales  proceeds
                                              are   reinvested  in  a  replacement
                                              Property,   no  such   real   estate
                                              disposition  fee  will  be  incurred
                                              until such  replacement  Property is
                                              sold and the net sales  proceeds are
                                              distributed.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal to one percent of  Partnership
cash flow                                     distributions   of  net  cash  flow,
                                              subordinated   to  certain   minimum
                                              returns to the Limited Partners.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal    to    five    percent    of
sales  proceeds  from a sale or sales not     Partnership  distributions  of  such
in liquidation of the Partnership             net sales proceeds,  subordinated to
                                              certain   minimum   returns  to  the
                                              Limited Partners.
</TABLE>
<PAGE>

<TABLE>

                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
              and Recipient                          Method of Computation                   Ended December 31, 2003
<S>     <C>    <C>    <C>    <C>    <C>    <C>

General  Partners'  share of  Partnership     Distributions  of net sales proceeds     $ - 0 -
net sales  proceeds  from a sale or sales     from   a   sale    or    sales    of
in liquidation of the Partnership             substantially     all     of     the
                                              Partnership's    assets    will   be
                                              distributed  in the following  order
                                              or priority:  (i) first,  to pay all
                                              debts   and   liabilities   of   the
                                              Partnership    and   to    establish
                                              reserves;  (ii) second,  to Partners
                                              with   positive    capital   account
                                              balances,   determined   after   the
                                              allocation of net income,  net loss,
                                              gain  and  loss,  in  proportion  to
                                              such   balances,   up   to   amounts
                                              sufficient  to reduce such  balances
                                              to zero; and (iii)  thereafter,  95%
                                              to the  Limited  Partners  and 5% to
                                              the General Partners.
</TABLE>
<PAGE>




Item 14.  Principal Accountant Fees and Services

         The  following  table  outlines  the only fees paid or  accrued  by the
Partnership  for the audit  and other  services  provided  by the  Partnership's
independent  certified public accountants,  PricewaterhouseCoopers  LLP, for the
years ended December 31:
<TABLE>

                                                           2003                                 2002
                                                      ----------------                    -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          Audit Fees (1)                                   $   10,695                           $    8,600
          Tax Fees (2)                                          3,171                                4,651
                                                      ----------------                    -----------------
               Total                                       $   13,866                           $   13,251
                                                      ================                    =================
</TABLE>



    (1)    Audit  services  of  PricewaterhouseCoopers  LLP for  2003  and  2002
           consisted  of the  examination  of the  financial  statements  of the
           Partnership and quarterly review of financial statements.

    (2)    Tax Fees relates to tax consulting and compliance services.

  Each of the  non-audit  services  described  above was approved by the General
Partners. Due to its organization as a limited partnership, the Partnership does
not have an audit committee.
<PAGE>




                                     PART IV


Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)       The following documents are filed as part of this report.

          1.  Financial Statements

                  Report of Independent Certified Public Accountants

                  Balance Sheets at December 31, 2003 and 2002

                  Statements  of Income for the years ended  December  31, 2003,
                    2002, and 2001

                  Statements of Partners'  Capital for the years ended  December
                    31, 2003, 2002, and 2001

                  Statements  of Cash  Flows for the years  ended  December  31,
                    2003, 2002, and 2001

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule II - Valuation and Qualifying  Accounts for the years
                    ended December 31, 2003, 2002, and 2001

                  Schedule  III - Real Estate and  Accumulated  Depreciation  at
                    December 31, 2003

                  Notes  to  Schedule   III  -  Real   Estate  and   Accumulated
                    Depreciation at December 31, 2003

                  Schedule IV - Loans on Real Estate at December 31, 2003

                  All other Schedules are omitted as the required information is
                    inapplicable or is presented in the financial statements or
                    notes thereto.

          3.  Exhibits

                  3.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                  4.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                  4.2      Amended and Restated Agreement of Limited Partnership
                           of CNL Income Fund VII, Ltd. (Included as Exhibit 4.2
                           to Form 10-K filed with the  Securities  and Exchange
                           Commission on April 1, 1996, and incorporated  herein
                           by reference.)

                  10.1     Management  Agreement  between  CNL Income  Fund VII,
                           Ltd. and CNL Investment  Company (Included as Exhibit
                           10.1 to Form  10-K  filed  with  the  Securities  and
                           Exchange   Commission   on   April   1,   1996,   and
                           incorporated herein by reference.)

                  10.2     Assignment   of   Management   Agreement   from   CNL
                           Investment Company to CNL Income Fund Advisors,  Inc.
                           (Included as Exhibit 10.2 to Form 10-K filed with the
                           Securities and Exchange Commission on March 30, 1995,
                           and incorporated herein by reference.)
<PAGE>

                  10.3     Assignment  of Management  Agreement  from CNL Income
                           Fund  Advisors,  Inc.  to  CNL  Fund  Advisors,  Inc.
                           (Included as Exhibit 10.3 to Form 10-K filed with the
                           Securities and Exchange  Commission on April 1, 1996,
                           and incorporated herein by reference.)

                  10.4     Assignment  of  Management  Agreement  from  CNL Fund
                           Advisors,  Inc. to CNL APF Partners, LP. (Included as
                           Exhibit  10.4 to Form 10-Q filed with the  Securities
                           and  Exchange  Commission  on August  10,  2001,  and
                           incorporated herein by reference.)

                  10.5     Assignment  of  Management  Agreement  from  CNL  APF
                           Partners, LP to CNL Restaurants XVIII, Inc. (Included
                           as   Exhibit   10.5  to  Form  10-Q  filed  with  the
                           Securities  and  Exchange  Commission  on August  13,
                           2002, and incorporated herein by reference.)

                  31.1     Certification of Chief Executive Officer of Corporate
                           General  Partner  Pursuant  to Rule 13a-14 as Adopted
                           Pursuant to Section 302 of the  Sarbanes-Oxley Act of
                           2002. (Filed herewith.)

                  31.2     Certification of Chief Financial Officer of Corporate
                           General  Partner  Pursuant  to Rule 13a-14 as Adopted
                           Pursuant to Section 302 of the  Sarbanes-Oxley Act of
                           2002. (Filed herewith.)

                  32.1     Certification of Chief Executive Officer of Corporate
                           General Partner Pursuant to 18 U.S.C. Section 1350 as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002. (Filed herewith.)

                  32.2     Certification of Chief Financial Officer of Corporate
                           General Partner Pursuant to 18 U.S.C. Section 1350 as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002. (Filed herewith.)

      (b)         The Registrant  filed no reports on Form 8-K during the period
                  from October 1, 2003 through December 31, 2003.

      (c)         Not applicable.

      (d)         Other Financial Information

                  The   Partnership  is  required  to  file  audited   financial
                  information of one of its tenants (Golden Corral  Corporation)
                  as a  result  of this  tenant  leasing  more  than  20% of the
                  Partnership's  total  assets for the year ended  December  31,
                  2003.  Golden Corral  Corporation is a privately-held  company
                  and  its  financial   information  is  not  available  to  the
                  Partnership to include in this filing.  The  Partnership  will
                  file this financial  information  under cover of a Form 10-K/A
                  as soon as it is available.
<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 25th day of
March, 2004.

                                           CNL INCOME FUND VII, LTD.

                                           By:      CNL REALTY CORPORATION
                                                    General Partner

                                                    /s/ Robert A. Bourne
                                                    ----------------------
                                                    ROBERT A. BOURNE, President


                                           By:      ROBERT A. BOURNE
                                                    General Partner

                                                    /s/ Robert A. Bourne
                                                    ----------------------
                                                    ROBERT A. BOURNE

                                           By:      JAMES M. SENEFF, JR.
                                                    General Partner

                                                    /s/ James M. Seneff, Jr.
                                                    ----------------------
                                                    JAMES M. SENEFF, JR.

<PAGE>


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>

              Signature                                    Title                                   Date
<S>     <C>    <C>    <C>    <C>    <C>    <C>

/s/  Robert  A. Bourne                     President,   Treasurer  and  Director              March 25, 2004
     ---------------
     Robert A. Bourne                      (Principal        Financial       and
                                           Accounting Officer)

/s/  James M. Seneff, Jr.                 Chief Executive  Officer and Director              March 25, 2004
     ----------------
     James M. Seneff, Jr.                 (Principal Executive Officer)
</TABLE>


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 2003, 2002, and 2001

<TABLE>

                                                     Additions                           Deductions
                                          ---------------------------------    -------------------------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                                          Collected
                                                                                                          or Deter-
                                   Balance at       Charged to       Charged to           Deemed          mined to       Balance
                                    Beginning       Costs and           Other           Uncollec-          be Col-       at End
  Year          Description          of Year         Expenses         Accounts            tible           lectible       of Year
----------    -----------------   --------------  ---------------  ----------------    -------------     ------------  ------------

  2001        Allowance for
                  doubtful
                  accounts (a)        $  10,349          $    --           $    --        $   9,845 (b)      $   504        $   --
                                  ==============  ===============  ================    =============     ============  ============

  2002        Allowance for
                  doubtful
                  accounts (a)           $   --          $    --           $    --           $   --           $   --        $   --
                                  ==============  ===============  ================    =============     ============  ============

  2003        Allowance for
                  doubtful
                  accounts (a)           $   --          $    --           $    --           $   --           $   --        $   --
                                  ==============  ===============  ================    =============     ============  ============
</TABLE>


      (a)  Deducted from  receivables  and accrued  rental income on the balance
           sheet.

      (b)  Amounts written off as uncollectible.
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2003


<TABLE>


                                                                Subsequent To     Net Cost Basis at Which
                                          Initial Cost           Acquisition         Carried at Close of Period (c)
                                 ---------------------  ----------------------------------------------------
                     Encum-                 Buildings anImprove-   Carrying          Buildings and
                    brances        Land      Improvementsments     Costs    Land     Improvements  Total
                    ---------    ---------  ---------------------  ------ ---------- -----------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Burger King Restaurants:
   Jefferson City, Tenn-ssee     $216,633    $546,967          -       -   $216,633    $546,967    $763,600
   Sierra Vista, Arizon-          421,170           -          -       -    421,170          (e)    421,170

Checkers Drive-In Restaurant:
   Winter Springs, Flor-da        397,536           -          -       -    397,536           -     397,536

Mama Fu's Noodle House
   Marietta, Georgia   -          534,421     507,133          -       -    534,421     507,133   1,041,554

Golden Corral Buffet and Grill:
       Odessa, Texas   -          502,364     815,831          -       -    502,364     815,831   1,318,195
       Midland, Texas  -          481,748     857,185          -       -    481,748     857,185   1,338,933
       El Paso, Texas  -          745,506           -    802,132       -    745,506     802,132   1,547,638
       Harlingen, Texas-          503,799           -    890,878       -    503,799     890,878   1,394,677

Hardee's Restaurants:
   Akron, Ohio         -          198,086           -          -       -    198,086          (e)    198,086
   Dalton, Ohio        -          180,556           -          -       -    180,556          (e)    180,556
   Minerva, Ohio       -          143,775           -          -       -    143,775          (e)    143,775
   Orrville, Ohio      -          176,169           -          -       -    176,169          (e)    176,169
   Seville, Ohio       -          245,648           -          -       -    245,648          (e)    245,648
   Clinton, Tennessee  -          295,861           -          -       -    295,861          (e)    295,861

Jack in the Box Restaurants:
   Baton Rouge, Lousian-a         562,533     933,167          -       -    562,533     933,167   1,495,700
   San Antonio, Texas  -          525,720           -    381,591       -    525,720     381,591     907,311

KFC Restaurant:
   Arcadia, Florida    -          175,020     333,759          -       -    175,020     333,759     508,779

Rally's Restaurant:
   Toledo, Ohio        -          281,880     196,608     47,002       -    281,880     243,610     525,490

Taco Bell Restaurant:
   Detroit, Michigan   -          168,429           -    402,674       -    168,429     402,674     571,103
                                 ---------  ----------  ---------  ------ ---------- ----------- -----------

                                 $6,756,854 $4,190,650  $2,524,277     -  $6,756,854 $6,714,927  $13,471,781
                                 =========  ==========  =========  ====== ========== =========== ===========


Burger King Restaurant:
   Sierra Vista, Arizon-                -           -   $333,212       -          -          (e)         (e)

Hardee's Restaurants:
   Akron, Ohio         -                -     540,215          -       -          -          (e)         (e)
   Dalton, Ohio        -                -     490,656          -       -          -          (e)         (e)
   Minerva, Ohio       -                -     436,663          -       -          -          (e)         (e)
   Orrville, Ohio      -                -     446,337          -       -          -          (e)         (e)
   Seville, Ohio       -                -     487,630          -       -          -          (e)         (e)
   Clinton, Tennessee  -                -     338,216          -       -          -          (e)         (e)

                                        -   $2,739,717  $333,212       -
                                 =========  ==========  =========  ======
</TABLE>

<PAGE>

                            Life on Which
                            Depreciation in
            Date            Latest Income
Accumulated of Con-Date     Statement is
DepreciationstructiAcquired  Computed
--------------------------------------





  $247,755  1988   01/90       (b)
         -  1990   06/90       (d)


        (f)   -    07/94       (f)


   121,198  1994   10/96       (b)


   374,162  1990   03/90       (b)
   392,582  1990   04/90       (b)
   355,207  1990   05/90       (b)
   396,953  1990   06/90       (b)


         -  1990   11/90       (d)
         -  1990   11/90       (d)
         -  1990   11/90       (d)
         -  1990   11/90       (d)
         -  1990   11/90       (d)
         -  1992   09/92       (d)


    93,315  2000   01/01       (b)
   170,828  1990   05/90       (b)


   149,139  1985   08/90       (b)


   105,501  1990   01/91       (b)


   179,389  1990   06/90       (b)
-----------

$2,586,029
===========



        (d) 1990   06/90       (d)


        (d) 1990   11/90       (d)
        (d) 1990   11/90       (d)
        (d) 1990   11/90       (d)
        (d) 1990   11/90       (d)
        (d) 1990   11/90       (d)
        (d) 1992   09/92       (d)


<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2003


(a)      Transactions in real estate and accumulated depreciation are summarized
         below.  The  balances  in 2003,  2002,  and 2001 have been  adjusted to
         reflect  the   reclassification   of   properties   accounted   for  as
         discontinued operations.
<TABLE>

                                                                                                Accumulated
                                                                               Cost            Depreciation
                                                                         -----------------    ----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          Properties the Partnership has Invested
            in Under Operating Leases:

               Balance, December 31, 2000                                    $  13,522,600       $  2,225,560
                Acquisitions                                                     1,495,700                 --
               Dispositions                                                     (1,546,519)          (333,933 )
               Depreciation expense                                                     --            246,735
                                                                         -----------------    ----------------

               Balance, December 31, 2001                                       13,471,781          2,138,362
               Depreciation expense                                                     --            223,831
                                                                         -----------------    ----------------

               Balance, December 31, 2002                                       13,471,781          2,362,193
               Depreciation expense                                                     --            223,836
                                                                         -----------------    ----------------

               Balance, December 31, 2003                                    $  13,471,781         $2,586,029
                                                                         =================    ================
</TABLE>


(b)      Depreciation  expense is computed for buildings and improvements  based
         upon estimated lives of 30 years.

(c)      As of December 31, 2003, the aggregate cost of the Partnership's wholly
         owned Properties was $ 16,104,595 for federal income tax purposes.  All
         of the leases are treated as  operating  leases for federal  income tax
         purposes.

(d)      The portion of the lease  relating to the building has been recorded as
         a direct financing lease. The cost of the building has been included in
         the net investment in direct financing leases; therefore,  depreciation
         is not applicable.

(e)      Certain components of the lease relating to land and building have been
         recorded as a direct  financing lease.  Accordingly,  costs relating to
         these components of this lease are not shown.

(f)      The  building  portion  of  this  Property  is  owned  by  the  tenant;
         therefore, depreciation is not applicable.

<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                       SCHEDULE IV - LOANS ON REAL ESTATE

                                December 31, 2003

<TABLE>

                                                                                                                      Principal
                                                                                                                      Amount of
                                                                                                                        Loans
                                                                                                                     Subject to
                                      Final           Periodic                      Face           Carrying          Delinquent
                      Interest       Maturity         Payment       Prior         Amount of        Amount of          Principal
   Description          Rate           Date            Terms        Liens         Mortgages      Mortgages(2)        or Interest
------------------    ---------  -----------------   -----------   ----------    -------------   --------------     -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Church's-
Daytona Beach,
   Florida             12.34%     November 2004         (1)            $ --        $ 103,581     $      --             $    --
                                                                   ----------    -------------   --------------     -------------

    Total                                                              $ --        $ 103,581     $      --             $    --
                                                                   ==========    =============   ==============     =============
</TABLE>


(1)      Monthly  payments of interest only at an annual rate of 12.34%,  with a
         balloon payment at maturity of $103,581.

(2)      The changes in the carrying amounts are summarized as follows:
<TABLE>

                                                               2003               2002                2001
                                                         ------------------   ---------------     ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

             Balance at beginning of period                     $      --        $  104,717          $  994,593

             New promissory note                                       --                --             103,581

             Interest earned                                           --             9,587               9,243

             Collection of principal and interest                      --          (114,304  )       (1,125,696  )

             Recognition  of deferred  gain on sale
             of                                                        --                --             122,996
                 land and building
                                                         ------------------   ---------------     ---------------

             Balance at end of period                            $     --          $     --          $  104,717
                                                         ==================   ===============     ===============
</TABLE>



                                  EXHIBIT INDEX


Exhibit Number

      (a)        Exhibits

                  3.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                  4.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                  4.2      Amended and Restated Agreement of Limited Partnership
                           of CNL Income Fund VII, Ltd. (Included as Exhibit 4.2
                           to Form 10-K filed with the  Securities  and Exchange
                           Commission on April 1, 1996, and incorporated  herein
                           by reference.)

                  10.1     Management  Agreement  between  CNL Income  Fund VII,
                           Ltd. and CNL Investment  Company (Included as Exhibit
                           10.1 to Form  10-K  filed  with  the  Securities  and
                           Exchange   Commission   on   April   1,   1996,   and
                           incorporated herein by reference.)

                  10.2     Assignment   of   Management   Agreement   from   CNL
                           Investment Company to CNL Income Fund Advisors,  Inc.
                           (Included as Exhibit 10.2 to Form 10-K filed with the
                           Securities and Exchange Commission on March 30, 1995,
                           and incorporated herein by reference.)

                  10.3     Assignment  of Management  Agreement  from CNL Income
                           Fund  Advisors,  Inc.  to  CNL  Fund  Advisors,  Inc.
                           (Included as Exhibit 10.3 to Form 10-K filed with the
                           Securities and Exchange  Commission on April 1, 1996,
                           and incorporated herein by reference.)

                  10.4     Assignment  of  Management  Agreement  from  CNL Fund
                           Advisors,  Inc. to CNL APF Partners, LP. (Included as
                           Exhibit  10.4 to Form 10-Q filed with the  Securities
                           and  Exchange  Commission  on August  10,  2001,  and
                           incorporated herein by reference.)

                  10.5     Assignment  of  Management  Agreement  from  CNL  APF
                           Partners, LP to CNL Restaurants XVIII, Inc. (Included
                           as   Exhibit   10.5  to  Form  10-Q  filed  with  the
                           Securities  and  Exchange  Commission  on August  13,
                           2002, and incorporated herein by reference.)

                  31.1     Certification of Chief Executive Officer of Corporate
                           General  Partner  Pursuant  to Rule 13a-14 as Adopted
                           Pursuant to Section 302 of the  Sarbanes-Oxley Act of
                           2002. (Filed herewith.)

                  31.2     Certification of Chief Financial Officer of Corporate
                           General  Partner  Pursuant  to Rule 13a-14 as Adopted
                           Pursuant to Section 302 of the  Sarbanes-Oxley Act of
                           2002. (Filed herewith.)

                  32.1     Certification of Chief Executive Officer of Corporate
                           General Partner Pursuant to 18 U.S.C. Section 1350 as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002. (Filed herewith.)

                  32.2     Certification of Chief Financial Officer of Corporate
                           General Partner Pursuant to 18 U.S.C. Section 1350 as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002. (Filed herewith.)
<PAGE>

                                  EXHIBIT 31.1
<page>



                                  EXHIBIT 31.2

<PAGE>

                                  EXHIBIT 32.1

<PAGE>


                                  EXHIBIT 32.2